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APRIL 2014 | VOLUME 9

An analysis of issues shaping Africas economic future

The economic outlook


for Sub-Saharan Africa
remains robust, but growth
is vulnerable to lower
commodity prices and a
slowdown in capital flows

The frequency and strength


of growth spurts have
increased

Growth has shifted


the structure of African
economies in favor of
the resources and
services sectors

AFRICAS PULSE TEAM:


Punam Chuhan-Pole (Team Leader),
Cesar Calderon, Allen Dennis,
Gerard Kambou, Manka Angwafo,
Mapi Buitano, VIjdan Korman, Aly Sanoh
With contributions from
Francisco H. G. Ferreira, Paul Brenton,
Luc Christiaensen, Thomas Farole,
Poonam Gupta, John Nash,
Ralph van Doorn

This document was produced by


the Office of the Chief Economist
for the Africa region

Summary
u The economic recovery in high-income countries is lifting global growth, but the pace of recovery in

these countries remains uneven.


u Economic activity was robust in much of Sub-Saharan Africa in 2013, supported by strong domestic

demandnotably investment growth.


u The outlook for Sub-Saharan Africa remains favorable, but prospects are sensitive to downside risks

from lower commodity prices and a sharp slowdown in capital flows.


u The pace of expansion in recent growth spurts in Sub-Saharan Africa has been faster and less volatile

than in earlier periods and higher than in takeoffs in other developing countries.
u Patterns of growth in Sub-Saharan Africa show considerable variation across countries, with resource-

rich countries growing at a faster pace than non-resource-rich countries.


u Growth has shifted sectoral shares, with the resources and services sectors gaining at the expense of

agriculture and manufacturing.

Section 1: Recent Developments and Trends


u Global

output growth is projected to strengthen to 3 percent in 2014, with much of the impetus
coming from high-income countries.

u Despite

emerging challenges, medium-term growth prospects for Sub-Saharan Africa remain positive,
and regional gross domestic product (GDP) growth is projected to rise to 5.2 percent in 2014, and
strengthen to 5.4 percent in 2015.

GLOBAL ECONOMY
After five years of prolonged weakness, the global economy is finally mending. Global output expanded
by 2.4 percent in 2013, and growth is set to rise to 3 percent in 2014 due to the recovery in high-income
economies (figure 1).1 The pace of the recovery in these countries remains uneven, however. In the
United States, economic expansion was constrained to 1.9 percent in 2013 as the growth momentum
slowed in Q4. Weak retail spending, job growth, and Purchasing Managers Index surveys point to a

1 Statistical analysis in this report is prior to the rebasing of Nigerias national accounts.

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A F R I C A S P U L S E

softening of economic activity in 2014Q1, as severe weather has weighed on consumer spending and
business activity in Q1. Nonetheless, the underlying impetus remains solid. With fiscal drags diminishing
and reduced policy uncertainty, the recovery is expected to pick up speed, and U.S. output is forecast
to grow at 2.7 percent. Activity in the Euro area has continued to firm following a near doubling of
growth to 1.1 percent in Q4, supported by strong exports. The region is expected to post growth of
over 1 percent in 2014, although significant spare capacity and a continued slide in core inflation are
generating concerns about deflation. In Japan, GDP growth was flat at 1 percent in Q4, thanks to weak
net exports, and the overall expansion in economic activity came in at 1.5 percent for the year. Industrial
output growth rebounded strongly in January, reflecting robust demand. Still, the cyclical recovery
could be harder to sustain amid fiscal drags from a sales tax hike in 2014Q2 and if progress on structural
reforms remains slow.

FIGURE 1: Global GDP growth

Global growth
is picking up,
with much of
the impetus
coming from
high-income
countries

Percent
15

8
6

10

4
5

2
0

-2
-5
-4
-10

2007

2008
China

2009

2010
Japan

2011

2012

Euro area

2013

2014

United States

-6 2007

2008
World

2009

2010
High income

2011

2012

2013

2014

Developing countries

Source: World Bank.

Developing countries grew at an overall pace of 4.8 percent in 2013, compared to 4.9 percent in 2012.
Trends were mixed across countries, however. Chinas economy grew by 7.7 percent in 2013 (as in 2012),
although growth moderated in Q4 from an annualized 9.3 percent to 7 percent, amid rising uncertainties
about investment and corporate debt. Economic activity firmed in developing countries (excluding
China) in Q4, with the annualized pace of GDP growth picking up from 4.8 percent to 5.6 percent.
Growth in East Asian countries excluding China continued to strengthen, supported by acceleration in
exports and robust domestic demand in Indonesia, Malaysia, and the Philippines. Similarly, the Europe
and Central Asia region benefited from strengthening Euro area demand. By contrast, weak domestic
demand resulted in slowing industrial activity in India and lower Q4 GDP growth in Mexico.
A F R I C A S P U L S E

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There have been two recent episodes of global financial turbulenceMayAugust 2013 and early
2014during which capital flows dropped off, and developing country equities and currencies
fell sharply, forcing sharp adjustments on several emerging market countries. The second bout of
market volatility followed a string of weaker-than-expected economic data in January and a sharp
devaluation of the Argentine peso. Financial market volatility spiked to levels not seen since the
summer of 2013. U.S. Treasuries declined by some 20 basis points in the last two weeks of January,
while markets in developing countries came under pressure. Between January 22 and February 5,
2014, developing country stock markets sustained losses of 6 percent and their CDS spreads widened
by some 100 basis points. The currencies of large middle-income countries with higher current
account deficits and external financing needs came under intense pressure. The Turkish lira and South
African rand sustained declines of 6.4 and 4.7 percent, respectively, in January, prompting their central
banks to raise interest rates.
The outlook is for a gradual strengthening of the global recovery. Global GDP growth is projected
to strengthen from 2.4 percent in 2013 to 3 percent in 2014, rising to 3.3 percent in 2015 and to
3.4 percent in 2016, with much of the impetus coming from high-income countries (figure 1).
Growth in high-income economies is expected to rise from 1.3 percent in 2013 to 2.1 percent
in 2014 and 2.4 percent in 2016, as drags on growth from government and household budget
consolidation efforts draw to a close and demand for consumer durables and investment goods
firms. Growth in developing countries is expected to rise to 5 percent in 2014 and average 5.5
percent in 2015-16, supported in part by the ongoing recovery in high-income countries.
Increased financial market and capital volatility remains a significant downside risk to the global
recovery. Notwithstanding the support from stronger external demand, developing countries face
significant risks from the normalization of monetary policy in high-income countries. According
to U.S. Congressional Budget Office (CBO) estimates, less than half of the eventual increase in U.S.
long-term rates has occurred thus far (the CBO estimates they will rise to 5 percent, compared
to just below 3 percent today and 1.6 percent in May 2013). While the baseline is for a gradual
tightening of global financial conditions, a rapid and disorderly rise in interest rates or a sharp
pullback in capital flows cannot be ruled out. Such developments could lead to lower investments
and severe financial disruptions.
Other risks to the global economy include those arising from Chinas high debt levels,
geopolitical tensions, and downside risks from commodity prices. Chinas commitment to
improve resource allocation and increase the role of market forces in the economy has been
reflected in major reforms since November 2013. But rebalancing the economy away from
investment and export to consumption could be a challenge. Any hard landing could have
substantial spillovers to economies within the East Asia region, and to commodity exporters
in Sub-Saharan Africa. Geo political tensions (as in Crimea) also pose tail risks, and could have
substantial confidence impacts that cut into global spending and activity, and cause dislocations
in global financial markets.
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A F R I C A S P U L S E

RECENT ECONOMIC
DEVELOPMENTS IN
SUB-SAHARAN AFRICA
Economic activity remained robust in
much of Sub-Saharan Africa in 2013. GDP
growth in the region strengthened to

FIGURE 2: Real GDP growth

Percent
9
8

4.7 percent in 2013, up from 3.5 percent

in 2012, supported by strong domestic

demand (figure 2). In South Africa, growth

was slower at 1.9 percent, hurt by structural


bottlenecks, tense labor relations, low

investor confidence, and weak external

Sub-Saharan Africa
excl South Africa

demand. Excluding South Africa, average

output growth for the rest of the region

Developing countries
excl China

was 6.1 percent, second only to developing


Southeast Asia and Pacific at 7.2 percent
and well above the global GDP growth rate

Real GDP
growth picked
up in SubSaharan Africa
in 2013

Sub-Saharan Africa
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: World Bank.

at 2.4 percent.
Sub-Saharan countries are among the
fastest-growing countries in the world
(figure 3). Growth was strong in resourcerich countries, including Sierra Leone and
the Democratic Republic of Congo due to
higher production in the mining sector.
Growth rebounded in the postconflict

FIGURE 3: Real GDP Growth in selected countries, 2013

Sierra Leone
Cte d'Ivoire
China
Dem. Rep. of Congo
Tanzania
Mozambique

countries of Cte dIvoire and Mali,

Rwanda

supported by improvements in political

Ethiopia

stability and the security situation. Non-

Nigeria

resource-rich countries, particularly


Ethiopia and Rwanda, also experienced
solid economic growth in 2013. Due to
conflict, economic activity contracted

Gambia
Uganda
Zambia
Vietnam
India

sharply in the Central African Republic,


while the oil economy in South Sudan was

Both resourcerich and


non-resourcerich African
countries
are among
the fastestgrowing
countries in
the world

10

12

14

Source: World Bank.

disrupted by the civil war that erupted


toward the end of the year.
Strong investment demand and robust private consumption were key drivers of growth in the region.
Gross fixed capital formation rose an estimated 8 percent in 2013, reaching 23.4 percent of GDP,
supporting the expansion of production capacity. Capital flows to Sub-Saharan Africa continued to rise,
reaching an estimated 5.3 percent of regional GDP in 2013, significantly above the developing-country
A F R I C A S P U L S E

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average of 3.9 percent. Net foreign


FDI inflows
dominate
capital inflows
to the region

FIGURE 4: Composition of capital flows to Sub-Saharan Africa

direct investment (FDI) inflows to the


region grew 16 percent to $43 billion

US$ Billion
80

in 2013, boosted by new hydrocarbon

Short-term debt flows


Bank lending
Bond flows
Net portfolio equity flows
Net FDI flows

70
60

discoveries in many countries including


Angola, Mozambique, and Tanzania
(figure 4). Higher FDI along with
rising debt-creating flows helped lift

50

overall net capital flows to the region.


While much of the FDI has focused

40

on the regions burgeoning resource

30

sector, some 30 percent of it focused


on the domestic market. Consumer-

20

oriented FDI projects in manufacturing


10

and services expanded, including in


telecommunication, banking, and

transport (box 1).


-10

2009

2010

2011

2012

2013e

Frontier markets (Ghana, Kenya,

Source: World Bank.


Note: e = estimate.

Mauritius, Mozambique, Nigeria,


Senegal, Tanzania, Uganda, and Zambia)

Frontier
markets are
attracting an
increasing
share of net
capital flows
to the region

have attracted much of the net capital

FIGURE 5: Capital flows to Sub-Saharan Africas frontier markets


US$ Billion

35
30

Percent
Net equity flows ($ billions)

ST and LT debt flows ($ billions)

Official creditors ($ billions)

Share frontier markets


(% total SSA, right axis)

Net FDI inflows ($ billions)

25
20

90

investment, to the region in recent

80

years. In 2012, FDI inflows to these

70

countries were $21 billion, nearly seven

60

times the amount of short- and long-

50

15

40

10

30

20

received (figure 5). Net portfolio


equity inflows to the region are largely
concentrated in Nigeria and South
Africa. Nigeria has seen an increase in

10

net portfolio equity inflows from a

-5

mere $0.5 billion in 2009 to $10 billion

Source: World Bank.


Note: LT = long term; ST = short term.

>

term debt flows that these countries

1990 1995 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

flows, particularly foreign direct

A F R I C A S P U L S E

in 2012.

Foreign direct investment (FDI) to Sub-Saharan Africa expanded more than 30-fold in the last 20 years, 7.5
times faster than in high-income countries and nearly 10 times faster than global GDP. Two investment
trends emerge as central to driving this rapid FDI growth in Africa: (i) the extended commodities boom
brought about by the unprecedented scale of development in Asia, and (ii) the massive expansion
offshoring in global value chains (GVCs). For host countries in Africa, the new wave of FDI not only delivers
investment and employment, but opens up new opportunities through deeper global trade integration.
However, the extent to which African countries benefit from FDI depends on whether they are able to
capture the productivity-enhancing spillovers of knowledge and technology.

BOX 1:
Is Africa getting
the most out
of FDI? The
challenge of
generating
productivity
spillovers in a
world of global
value chains

Recent research (Farole and Winkler 2014) suggests the experience in Sub-Saharan Africa on achieving
FDI spillovers has been largely disappointing. At the heart of the problem is that linkages between foreign
investors and local economiesespecially through supply chainshave remained limited in Africa. But
there are some important differences hidden in the aggregate story.

76

Kenya 4

23

63
10

20

30

33
40

Domestic firms

50

60

70

80

90

Foreign firms based in the country

100

Imports

FIGURE 7: Location of sourcing decision making

Chile

Mining

Second, some countries appear to be doing


better than others. While the survey sample
may be too limited to generalize, the degree
of local sourcing (and the use of local skilled
labor) is likely to be linked closely to the
capacity of local firms (and skilled workers),
which is in turn partly a function of the depth
of local markets. This suggests a catch-22
situation, whereby generating productivityenhancing spillovers is dependent on having

Lesotho 1

78

Mozambique

22

69

31

Ghana

87

Swaziland

Apparel

One positive feature of these findings is


that, even in the apparel sector, foreign
investors source the large majority of inputs
locally (rather than importing them); it is
just that often these are sourced from other
foreign investors. This means that while
local ownership does not increase, local jobs
are still created. It also means there may
be scope for local firms to take over these
supply relationships in time.

Apparel

Mining

Agribusiness

First, some sectors may have greater potential for integration than others. Survey results indicate that
while foreign investors purchase virtually no inputs from domestic suppliers in the apparel sector, local
supply relationships are more extensive in mining and (not surprisingly) much more in agribusiness
(figure 6). One of the main reasons for differences across sectors (especially between mining and
apparel) relates to the sourcing strategies of foreign investors in the context of their global supply and
production networks. In the apparel sector,
local management in African host countries
FIGURE 6: Distribution of inputs by sourcing location
has very limited power over sourcing
decisions, most of which are made by parent
53
4
43
Vietnam
companies or by global buyers like Walmart
46
29
25
Mozambique
and The Gap, which specify what and from
20
45
35
Kenya
whom to source fabric, buttons, and zippers.
19
36
45
Ghana
In mining, by contrast, most of the decision30
26
44
Chile
making power rests with local management,
13
23
64
Mozambique
although here, too, global procurement is
25
24
51
Ghana
increasingly encroaching (figure 7).
71
28
Swaziland 1

13

25

Lesotho

75

14

Kenya

86
29

10

71
20

30

40

Local management

50

60

70

80

90

100

External decisionmakers

A F R I C A S P U L S E

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BOX 1:
Continued

a base of relatively productive firms and workers in the first place. Indeed, this is precisely what the study
finds. Results from a large cross-country regressiona show absorptive capacity is the most important
factor mediating productivity spillovers from FDI. More specifically, firms that are relatively large, spatially
clustered, export oriented, and technologically sophisticated are most likely to be affected by the presence
of foreign investors.
Thus, generating spillovers from FDI is not easy, particularly for small economies with limited existing
capacity. And in the context of GVC-oriented FDI, the scope for shaping and managing spillovers is
increasingly limited. The research suggests, however, that governments have a role to play in facilitating
spillovers. Much of this is long term and involves getting the basics of policies and institutions right, in
particular investing heavily in education and skills development and supporting trade and financial market
openness. Beyond this, however, the research suggests there are a number of things governments can do
to deepen linkages and support the potential for spillovers in the short to medium term. It is important to
note that local context should determine appropriate policies.
First, actions to expand supply chain and labor market linkages may be considered. One possibility is to
promote (although not compel) joint ventures; an important finding from the cross-country regressions
is that partly foreign-owned firms (joint ventures) are significantly more integrated into domestic markets
than fully foreign-owned firms.
Second, governments can help overcome information gaps around local supply capabilities and align
fiscal incentives used to attract foreign investors with the goals of building local supply capacity and local
technical skills (including some level of conditionality). Governments can also improve the environment
for domestic contract enforcement and other barriers to formal contracting with local suppliers. One
interesting finding from the survey was that local suppliers that had formal contracts with foreign investors
were 56 percent more likely to receive critical technical assistance from investors than those in more adhoc supply relationships.
Third, government can create an environment conducive to facilitating translating linkages into spillovers.
An example might be incentivizing foreign investors to employ appropriate technologythe study
productivity spillovers were greater when the technology gap between foreign investors and local firms
was not too large. Another example might be promoting the provision of technical assistance, particularly
around building quality capabilities of local firms, which was shown clearly to influence the capacity and
performance of local suppliers.
Finally, the study suggests that programs to support linkages and spillovers need to take into account the
heterogeneity of local firms, and therefore concentrate limited resources (at least initially) on relatively
higher capacity, high-potential firms.
Source: Farole and Winkler 2014.
a. Covering 25,000 domestic manufacturing firms in 78 low- and middle-income countries from the World Banks Enterprise Surveys over 200610.

Lower inflation supported the demand for goods and services. Due in part to lower international food
and fuel prices, and to prudent monetary policy, inflation decelerated in the region, growing at an
annual rate of 6.3 percent (median rate 7.7 percent) in 2013, compared with 10.7 percent (median rate
10.4) a year ago (figure 8). Some countries, such as Ghana and Malawi, have seen an uptick in inflation
because of depreciating currencies. Remittances to the region grew 6.2 percent to $32 billion in 2013,
exceeding the record of $30 billion reached in 2011. These inflows, combined with lower food prices,
boosted household real income and spending.
The regions export performance was adversely affected by the fall in commodity prices. With the
exception of energy, all the key commodity price indexes declined significantly in 2013: precious metals
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A F R I C A S P U L S E

(down almost 17 percent), agriculture


(down 7.2 percent), and metals (down

FIGURE 8: Inflation

5.5 percent). Crude oil prices (World Bank

% change, y/y
25

average), which have been remarkably


stable during the last three years,
averaged $104 per barrel during 2013,

20

Ghana
Nigeria
South Africa
Zambia
Sub-Saharan Africa

marginally lower than the $105 per barrel


average of 2012. Reflecting the fall in

Inflation
decelerated in
Sub-Saharan
Africa in 2013
but inflationary
pressures have
begun to
pick up

15

commodity prices and weak demand,


export receipts were depressed in the

10

region, even though, on a volume basis,


exports increased in many countries.

Meanwhile, imports rose strongly,


underpinned by a robust demand for
capital goods, as governments across the
region ramped up investment projects

Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Feb-14

Source: World Bank.


Note: Y/Y = year-over-year.

in infrastructure and construction. As


a result, the regional current account
deficit widened from 1.6 percent of GDP in 2012 to an estimated 3.1 percent of GDP in 2013, but there is
considerable variation across countries.
The tourism sector grew at a robust pace in 2013, helping to support the balance of payments of
many countries in the region. Data from the United Nations World Tourism Organization show that
international tourist arrivals in Sub-Saharan Africa grew by 5.2 percent in 2013, reaching a record
36 million, up from 34 million in 2012, contributing to government revenue, private incomes, and
employment. This increase was above the average world growth of 5 percent but less than the 6.2
percent growth achieved in the region in 2012. Demand was strong throughout the year, with a
moderate slowdown in the second quarter. Leading growth in 2013 were destinations in Rwanda (up
13.8 percent), Zimbabwe (up 12.5 percent), the Seychelles (up 10.8 percent), and Cabo Verde (up 5.3
percent). Madagascar and Kenya, two leading destinations in the region, saw significant declines in
international tourist arrivals due to domestic events.
Fiscal deficits widened in 2013 and debt-to-GDP ratios rose across the region. The largest deterioration
of fiscal balances occurred among oil exporters and low-income countries. In Cameroon and Chad,
fiscal deficits as a share of GDP more than doubled in 2013; and in Malawi, the overall fiscal deficit
widened to about 15 percent of GDP after rising to 11.3 percent of GDP in 2012. Among middle-income
countries, Ghanas fiscal deficit remained high at around 11 percent of GDP in 2013; in Zambia, the fiscal
deficit widened sharply in 2013, and in South Africa, the fiscal deficit is forecast to remain unchanged
at 4.2 percent of GDP in 2013/14. Ambitious public investment programs and large increases in public
wages coupled with weak revenues contributed to the deterioration of fiscal balances in many of
these countries. In Zambia, for example, the government increased civil servants salaries by a record 45
A F R I C A S P U L S E

>

percent in 2013, and in Ghana the wage bill rose from 9.3 percent of GDP in 2012 to over 10 percent in
2013.
The debt-to-GDP ratio for the region has risen moderately from 29 percent in 2008 to 34 percent in
2013. Overall, Sub-Saharan Africas debt ratios are lower than those for other developing regions, partly
because of debt cancelation under the Heavily Indebted Poor Countries initiative and the Multilateral
Debt Relief Initiative. The regional average, however, reflects significant differences across countries.
Among low-income countries, the debt-to-GDP ratio rose to an estimated 46 percent of GDP in Senegal
and 48 percent of GDP in Mozambique. Among middle-income countries, debt-to-GDP ratios exceeded
50 percent of GDP in Ghana and 90 percent of GDP in Cabo Verde in 2013, raising concerns about debt
sustainability going forward.
Fiscal policy has remained expansionary in the region even as growth has returned to precrisis levels
in many countries, resulting in depleted fiscal buffers and rising vulnerability to external headwinds.
Botswana, where fiscal consolidation has underpinned macroeconomic stability in recent years, remains
a notable exception. Reflecting prudent fiscal policy, the budget remained broadly balanced in 2013,
allowing the public debt ratio to fall to 16 percent in 2013 from 18 percent in 2012.
Five years after the global financial crisis, more than a third of Sub-Saharan African countries continue to
see both fiscal and current account balances that are weaker than at the beginning of the crisis. Resourcerich countries mostly entered the crisis with large current account deficits: The median current account
deficit was 9.3 percent of GDP and the fiscal deficit was close to zero percent of GDP. The median value
for these deficits in 2013 was 6.2 percent and 3 percent, respectively. Non-resource-rich countries entered
the crisis with current account and fiscal deficits at 8 percent and 1.8 percent of GDP, respectively. While
there is heterogeneity across countries, many resource-rich and non-resource-rich countries have seen
deterioration in their current account and fiscal balances (figure 9). In some countries such as Liberia, the
widening of the current
FIGURE 9: Current account and fiscal balance, 2013

account deficit has been


driven by FDI: During

20
NGA

Current account balance 2013 (% GDP)

Current
account and
fiscal deficits
remain large
in many
Sub-Saharan
African
countries

0
ZMB

GHA

-20

-40

AGO

GAB

COG

SWZ

NAM
ERI

2009-12, the current

BWA

CIV BFA
CMR GNB CAF
KEN ZAF ETH
COM
TCD
DJI
MLI
MUS
SEN
ZAR
TGO UGA BEN
GMB
RWA
GNQ
SLE BDI
GIN
MWI
TZA
STP
MDG
ZWE NER
LSO
CPV

SYC

averaged 52 percent
of GDP.
Developments since

MOZ

-10

the beginning of

-5

Resource rich
0

Fiscal balance 2013 (% GDP)


Source: WEO 2013.

10

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A F R I C A S P U L S E

nearly 33 percent of GDP


while net FDI inflows

LBR

-60

account deficit averaged

10

Non-resource rich
15

2014, and the global


financial turbulence
of MayAugust 2013,
have underscored
the need for reforms

to reduce fiscal and external imbalances. At the beginning of the year, as the United States began to
taper its asset purchase program, the currencies of South Africa and other frontier market economies
came under renewed pressure (box 2). The Ghanaian cedi and Zambian kwacha depreciated sharply
against the U.S. dollar, and South Africas central bank hiked interest rates by 50 basis points to prop up
the rand. Monetary policy was also tightened in Ghana and Zambia as inflation worries and exchange
rate depreciations prompted their central banks to hike interest rates, by 200 basis points in the case
of Ghana and 50 basis points in the case of Zambia. In Nigeria, the central bank continued its tight
monetary policy, leaving the policy rate unchanged at 12 percent, while foreign reserves fell 11.7 percent
to $37.8 billion in March from $42.9 billion in December as the government intervened in the foreign
exchange market to support the naira.
With global financial conditions tightening, short-term capital inflows have declined significantly,
suggesting changing investor sentiment toward the region. Meanwhile, the slowdown of economic
growth in China is translating into lower industrial metal prices. For example, the price of copper, a key
export for several African countries including Zambia, has decreased by more than a third from its 2011
peak of $10,190 per ton. Falling commodity prices, an important source of export and government
revenue in many countries in the region, could exacerbate fiscal and current account deficits in these
countries, leaving their currencies vulnerable to external headwinds.

The summer of 2013 was a turbulent period for many emerging markets, as tapering talk roiled these
countries, leading to a sharp selloff in their equity and bond markets, and resulting in depreciation of their
exchange rates. The impact across emerging markets was not felt uniformly though; some countries were
affected more than others. The worst-affected countries, Brazil, India, Indonesia, Turkey and South Africa,
since branded the fragile 5, saw their exchange rates plunge by an average 12.2 percent, reserves decline
by 6.4 percent, and stock prices decline by 5.9 percent.

BOX 2:
Tapering talk:
The Impact
on African
Economies

A recent paper (Eichengreen and Gupta 2014 ) documented the effect of tapering talk on a large set of
emerging markets and asked who was hit by the U.S. Federal Reserves tapering talk and why.a Two key
points emerged from this study. First, there is little evidence that the countries with stronger macroeconomic
fundamentals (smaller budget deficits, lower debts, more reserves, and stronger growth rates in the
immediately prior period) were rewarded with smaller falls in exchange rates, foreign reserves, and stock
prices. Second, what mattered for the emerging markets was the size of their financial markets.b Investors
seeking to rebalance their portfolios concentrated on emerging markets with relatively large and liquid
financial systems. These were perhaps the markets where they could most easily sell without incurring losses,
and where there was the most scope for portfolio rebalancing. Their analysis provided an obvious contrast
with so-called frontier markets, with smaller and less liquid financial systems. The findings were a reminder
that success at growing the financial sector can be a mixed blessingwhile easing the financing constraints
on developing countries, it can accentuate the impact of financial shocks emanating from outside.
A review of the changes in the nominal exchange rate during AprilAugust 2013 for 40 African countriesc
shows considerable heterogeneity in outcomes, with the largest exchange rate depreciation experienced
by countries with floating exchange rates (figure 10): South Africa (10.6 percent), Ghana (8.5 percent),
Botswana (5.4 percent), Tanzania (5.2 percent) and Kenya (3.9 percent). Overall, the exchange rate changes
in African countries were less marked than in the sample of emerging market countries from other regions

A F R I C A S P U L S E

>

11

BOX 2:
Continued

Exchange rate
changes varied
across African
countries, but
were smaller
than in other
regions

in Eichengreen and Gupta (2014). Exchange rates depreciated in 55 percent of the emerging markets in
other regions, and the proportion of such African countries was much smaller at 37 percent. The extent of
depreciation in African countries was smaller, as well, with average depreciation at 2.9 percent compared to
nearly 6 percent in emerging markets in other regions.
FIGURE 10: Exchange rate depreciation, AprilAugust 2013

South Africa
Ghana
Botswana
Tanzania
Kenya
Seychelles
Rwanda
Nigeria
Ethiopia
Zambia
Congo, Dem. Rep.,
Angola
Gambia, The
SierraLeone
Uganda
Zimbabwe
Eritrea
Mauritius
Madagascar
Sudan
Guinea
Mozambique
CEMAC & WAEMU
Others Pegged to Euro
-4

-2

10

12

Note: CEMAC = Central African Economic and Monetary Community;


WAEMU = West African Economic and Monetary Union.

FIGURE 11: Link between exchange rate depreciation and


financial market size, AprilAugust 2013

% Exchange Rate Depreciation, April-August 2013

Size of the
financial
markets
mattered in
accentuating
the impact of
financial shocks
emanating
from outside

BRA
IND

15
ZAF

10
BWA

TZA PAK LKA


COL
TUN
DOM
BLR
KEN ETH
RWA
JAM NGA
KAZ
GTM
ZAR
ZMB LBN VNM
UGAJOR
SRB AGO
ZWE
UKR
SLE
CRI
AZE
ROU
MOZMKD
LVA
BIH
MAR
HUN
GAB
LTU
BGR
BDI ARM ALB CIV
HRV

-5

GHA THA CHL IDN


PER MYS
PHL

10

Sub-Saharan Africa

Fitted values

Source: Global Financial Stability 2013


Note: Financial market size is measured by total external private financingthat is,
inflows of equity, bonds, and loans during 201012 transformed into logs.

12

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A F R I C A S P U L S E

MEX
RUS

POL
CHN

12

Financial Markets, Size


Rest of the World

TUR

The empirical findings in


Eichengreen and Gupta (2014)
are extrapolated and extended
to see why African countries
were relatively insulated from
the summer turmoil. The answer
seems to be that the size of
financial markets and the extent of
foreign capital are relatively small
in African countries. This small size
seems to have provided insulation
(figure 11). Another relevant factor
is the composition of capital that
goes to Africa. Empirical evidence
in the literature overwhelmingly
shows that not all capital flows
are alike. FDI flows are considered
more stable than portfolio flows,
and within portfolio flows, equity
flows are considered more stable
than debt-creating flows. African
countries rely less on ficklenatured portfolio debt flows.
The analysis also shows that
factors that were not considered
important determinants of the
exchange rate effect during
summer 2013 by Eichengreen and
Gupta continue to be irrelevant
for the extended sample, as
well. Indeed, economic growth,
fiscal deficit, level of current
account deficit, and public debt in
economies are not associated with
the exchange rate depreciation
(figure 12).

FIGURE 12: Determinants of exchange rate depreciation during tapering talk, AprilAugust 2013
Panel A: Fiscal balance

Panel B: Current account balance

TUR

% Exchange Rate Depreciation, April-August 2013

% Exchange Rate Depreciation, April-August 2013

IND

URY

10

ZAF

THA
GHA
IDN
PER
MYS
PRY
PHL
RUS
MEX
TZA
BWA
LKA
PAK
COL
KEN
BLR
JAM TUN DOM
SYC
NGA ZMB
KAZ
VNM
LBN
ZAR
GTM POL
AGO HKG
SRB JOR
CHN ROU UGA ISR
KOR
AZE
MOZ
GAB LVA
MAR GNQ
COM
CZE SEN TGO
CPV STP
BEN MLI NER GNB BDI
CHL

5
SGP

0
COG

ERI

-5
-10

-5

10

Fiscal Deficit, 2012


Rest of the World

Fiscal and
current account
deficits did
not matter for
exchange rate
changes

BRA

BRA

15

BOX 2:
Continued

Sub-Saharan Africa

15

IND
URY

15

10
MYS

5
SGP

AZE
GAB

-5

ZAF
THA IDN TUR
PRY CHL
PER

GHA

PHL
MEX BWA
RUS
TZA
PAK COL LKA
KEN
DOM
BLR
JAM
TUN
SYC
RWA
NGA
KAZ ZMB GTM ETH
LBN
ZAR
VNM
ERI
AGO
CRI
JOR
MDG
MUS GMB
KOR CHN ISR ROU
MAR GNQ
HUN BFA CAF
BDI STP
CPV
MKD
NER
MLI
GNB
HRV
BEN

-20

ZWE

SLE
GIN

MOZ

20

40

Current Account Deficit, 2012


Fitted values

Rest of the World

Sub-Saharan Africa

Fitted values

The experience of the fragile 5 holds some lessons for African economies. As the frontier African
economies attract increasingly larger amounts of capital flows in future, it is imperative for them to
keep encouraging the flows that are considered more stable, such as FDI. They need to be aware that
with larger capital flows comes the larger responsibility of managing them well. As the reliance of
frontier economies on foreign capital increases, they need to implement policy frameworks that can
handle the potential volatility in capital flows, which include their firms and banks being able to absorb
exchange rate volatility; using a broad array of macroprudential measures to avoid appreciation of the
real exchange rate and widening of the current account deficit in response to foreign capital inflows; and
maintaining policy buffers in fiscal and monetary policies to respond to shocks emanating from beyond
their borders.
Source: Eichengreen and Gupta 2014.
a. The analysis by Eichengreen and Gupta focused on about 50 emerging markets with little representation from the Africa region (the only African countries they included were
Ghana, Kenya, Mauritius, and South Africa.
b. What also mattered was the real exchange rate appreciation or widening of current account deficits in the earlier period, when large amounts of capital were flowing into emerging
markets. Financial market size is measured by total external private financingthat is, inflows of equity, bonds, and loans during 201012 (see Global Financial Stability Report
[IMF 2013]).
c. Fourteen countries had pegged their exchange rates to the euro as part of their monetary unions, the Central African Economic and Monetary Community (CEMAC) and the West African
Economic and Monetary Union (WAEMU). Another four countries had pegged their currencies to the euro outside these unions; one adopted the U.S. dollar as its legal tender; and the
remaining 21 countries had some kind of floating exchange rates.

NEAR-TERM GROWTH PROSPECTS


Despite emerging challenges, medium-term growth prospects for Sub-Saharan Africa remain favorable.
GDP growth is projected to rise to 5.2 percent in 2014 from 4.7 percent in 2013, and to strengthen to
5.4 percent in both 2015 and 2016, indicating that Sub-Saharan Africa is expected to remain one of the
fastest growing regions.
Robust domestic demand, underpinned by investment in natural resources and infrastructure and
household consumption, will continue to drive growth in most countries in the region. External
demand will also be supportive of growth in the region in view of the strengthening recovery in highincome countries, which bodes well for export demand and investment flows. As the Federal Reserve
continues to taper its asset purchases and financial conditions in the United States and other developed

A F R I C A S P U L S E

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13

countries tighten, capital inflows are projected to fall in the region in 2014. Countries with liquid capital
markets and large financing requirements, notably South Africa but also frontier market countries, are
expected to suffer a tangible impact. However, for most countries in the region, the impact of tighter
global financing conditions is likely to be limited. This is partly because foreign direct investment, the
dominant type of capital inflows for the region, is less sensitive to global interest rate hikes than shortterm portfolio flows. Nevertheless, FDI flows are expected to be lower in 2014 due to weaker commodity
prices and slower growth in emerging markets. Still, new discoveries of oil, gas, and metals are expected
to attract substantial FDI flows into the region, which should support growth in many countries. Besides
FDI, public investment in infrastructure, particularly in energy, roads, and ports, is also expected to
continue to expand, especially in fragile countries, which should help boost industrial production and
strengthen export capacity.
Private consumption is expected to remain robust in most countries in the region during 201416,
underpinned by a growing population, improving real per capita incomes, and continued price stability.
Adequate rainfalls, improved agricultural production, and stable exchange rates are expected to help
contain inflationary pressures in low-income countries, which should keep interest rates low. Although
the inflation outlook is expected to remain favorable across the region, prices will trend higher due to
droughts in some countries or pass-through from currency depreciations in others, particularly Ghana
and South Africa. Combined with steadily rising remittances, these effects should stimulate private
consumption and permit a robust expansion of domestic demand.
Government consumption is expected to rise at a moderate pace. Large public sector wage bills, transfers
and subsidies, and other recurrent expenditures for social sector projects (as governments strive to
achieve better development outcomes) will continue to drive public expenditures in 2014. However,
governments in many countries, including Ghana, Senegal, and Zambia, are expected to carry out fiscal
consolidation measures in an effort to bring public expenditures down to sustainable levels and restore
fiscal buffers.
Net exports are expected to exert a drag on GDP growth in the region over the forecast horizon.
Commodity prices are expected to remain subdued over the forecast period due to slowing growth in
emerging markets, notably China. In particular, prices of copper, iron ore and oil are expected to remain
relatively soft. The weakening of commodity prices will be particularly damaging for countries where
output is low, such as among the oil-exporting Central African countries where production is stagnating.
Metal-exporting countries, such as Zambia, have maintained or increased output, which should help
mitigate the weakness of metal prices. Overall, export earnings are expected to remain depressed. On
the import side, the demand for capital goods is projected to remain strong. Reflecting the buoyant
growth in import demand, despite sharp currency depreciations in some cases and subdued global
commodity prices, the current account deficit in the region is projected to increase from an estimated
3.1 percent of GDP in 2013 to an average of 3.4 percent of GDP in 2014 and 2015.
Regional growth will be broad based, driven by resource-rich countries, low-income countries, and
the recovery in fragile countries that are seeing improvements in political stability and security. At
the subregional level, growth is expected to be strong in East Africa, supported by strong FDI flows
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A F R I C A S P U L S E

into offshore natural gas resources in Tanzania, and the onset of oil production in Kenya and Uganda.
Ethiopia is expected to be among the fastest-growing countries in the region, with growth underpinned
by strong public investment in agriculture and infrastructure. In Southern Africa, tight monetary policy
combined with labor strikes and weak electricity supply will keep growth subdued in South Africa;
but despite falling copper prices, growth is expected to remain robust in Zambia as the high grades
of Zambias copper reserves keep production profitable and new mines open. In Angola, following a
slowdown in 2013, growth is expected to pick up in 2014, supported by a rebound in oil production and
infrastructure investment.
Within the major economies in West Africa, growth is expected to remain robust in Nigeria, supported
by the continued expansion of the nonoil sector, with growth in manufacturing, communication,
transport, and real estate remaining robust, and as agricultural production expands in response to
reforms in the sector. However, growth is expected to remain subdued in Ghana as higher domestic
interest rates and inflation weigh on demand. In francophone West Africa, growth prospects will be
affected by drought in the Sahel, where erratic rainfalls could lower agricultural production and lead to
higher food prices. Nevertheless, driven by FDI flows in the natural resource sector, increased production
from projects coming onstream, and public investment in infrastructure, growth is expected to remain
robust in many of these countries, particularly in Cte dIvoire.
Overall, real GDP growth in the region is expected to remain stronger than in many other developing
countries, allowing for some relative gains in real per capita incomes. Poor physical infrastructure will,
however, continue to limit the regions growth potential. While fixed investment has increased in recent
years, a further scaling up of infrastructure spending is needed in most countries in the region if they are
to achieve a lasting transformation of their economies. The regions infrastructure deficit is most acute
in the energy and road sectors. Across the region, unreliable electricity supply and poor road conditions
continue to impose high costs on business, reduce efficiency, and impede intraregional trade.

RISKS TO THE ECONOMIC OUTLOOK


The risks to the regions outlook are mainly on the downside and include lower commodity prices
brought on by weaker growth in emerging markets; the reversal of capital flows resulting from
tightening of global monetary conditions; and domestic risks from political unrest, security problems,
and inflationary pressures.

Lower commodity prices


Weaker demand combined with increased supply could lead to a shaper decline in commodity prices
than assumed in the baseline. In particular, if Chinese demand, which accounts for about 45 percent of
total copper demand and a large share of global iron ore demand, remains weaker than in recent years
and supply continues to grow robustly, copper and iron ore prices could decline more than the baseline
presented in the outlook, with significant negative consequences for the metal-producing countries.
Monetary risks, including the normalization of monetary policy in high-income countries, should be
A F R I C A S P U L S E

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15

less of a concern for metal prices. Over the years, the effect of short-term interest rates on metals has
been mixed and modest. The most important impact is likely to come from the weakening of industrial
production growth. Markedly weak Purchasing Managers Index and industrial production figures during
JanuaryMarch suggest that Chinas economy may be slowing amid the rebalancing of its growth
toward more reliance on demand and less on investment. A major slowdown in Chinas growth and
weaker commodity prices would significantly weaken long-term foreign investment and growth in many
countries in the region.

Tighter monetary conditions


Capital flows to developing countries are expected to face headwinds in 2014 as the process of
normalization in global financing conditions continues. Financial market and capital flow volatility has
already led to sharp policy adjustments in countries in the region. A rapid and disorderly rise in interest
rates or pullback in capital flows remains a major concern for these countries. Simulations conducted for
the January 2014 Global Economic Prospects Report suggest that a sudden 100-basis-point increase in
U.S. bond yields, as observed in summer 2013, could be expected to lower capital inflows to developing
countries by about 50 percent for several months, implying a significant increase in the cost of raising
capital, which could lead to lower investment and growth.
South Africa, which has strong links with global financial markets, is particularly vulnerable to sudden
stops of capital inflows given its reliance on portfolio inflows to finance its current account deficit. In
the recent bout of financial volatility the rand depreciated sharply, prompting the central bank to hike
interest rates. As the recent episode of market volatility has demonstrated, frontier market countries
such as Ghana, Nigeria, and Zambia, which have seen significant portfolio inflows in local securities
markets, will also be affected by the reversal of capital flows. Similarly, countries that are planning to tap
the international bond markets are likely to face higher coupon rates (box 3). Countries with ongoing
political and economic vulnerabilities and where progress in reducing fiscal and external imbalances has
been slower are likely to experience greater volatility.

BOX 3:
Global interest
rate shocks
and debt
vulnerability

Rising global interest rates can have an impact on both public and private debt in a country through a
number of channels: (i) direct and indirect impact on interest rates on external debt, (iii) indirect impact
on interest rates on domestic debt, and (iii) indirectly through valuation effects from exchange rate
shocks. Which of these channels are important for African countries depends on the structure of their debt
portfolio, their reliance on external or domestic financing, and their resilience to these shocks.
Many African countries borrow primarily on concessional terms from the main multilateral organizations.
These loans typically carry fixed interest rates (or predetermined charges), which means that interest rate
risk on these instruments is limited.a Similarly, most loans from bilateral lenders, whether from the Paris Club
or not, are typically but not exclusively at fixed interest rates.
Some countries, however, have variable-rate external public and private debt, typically on a fixed spread
over a market rate such as the LIBOR.b This means that any global interest rate shock is immediately
transmitted through these loans. Apart from Zimbabwe, which is in a special situation, Angola, Botswana,
Cte dIvoire, and South Africa have the highest levels of variable-rate external debt (figure 13).

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A F R I C A S P U L S E

BOX 3:
Continued

FIGURE 13: Variable-rate and short-term external debt in selected countries


% of GDP

100

80

60

40

External variable-rate debt (% of GDP)

External short-term debt (% of GDP)

Total external debt (% of GDP)

Gabon

Gambia

Kenya

Zambia

Benin

Congo, Dem. Rep.

Mauritania

Cabo Verde

So Tom and Prncipe

Ethiopia

Ghana

Tanzania

Angola

Botswana

Cte d'Ivoire

Sudan

South Africa

Mauritius

Zimbabwe

20

Total external PPG debt (% of GDP)

Sources: World Bank International Debt Statistics (debt) and IMF World Economic Outlook (GDP) (as of end-2012).
Note: PPG=public and publicly guaranteed.

Short-term external loans may have fixed interest rates, but since they need to be repaid fully within one
year by definition, there is always a risk that the loans need to be refinanced at a different, and possibly
higher, interest rate. Some of these loans may be trade credit, and secured against the delivery of imports
or exports, so that they do not have to be refinanced. However, to the extent that such trade flows
display a regular annual pattern, these loans will be contracted annually. The majority of external debt
in Mauritius is short-term private sector debt, amounting to 33 percent of GDP. Apart from Sudan and
Zimbabwe, short-term external debt is still around 6 to 7 percent of GDP in Benin, Ghana, So Tom and
Prncipe, South Africa, and Tanzania.
Sovereign bonds issued on international capital markets (also called Eurobonds) typically carry a fixed
coupon payment, and mostly have a 5- to 10-year maturity. This means that, in principle, interest rate risk
is low. However, bonds are fully repaid upon maturity (bullet payment). If the borrower needs to refinance
the bond, there is a refinancing risk and an interest rate risk for the entire loan amount. Investors will
compare any new bond against safe alternatives (typically U.S. Treasuries or safe Euro area bonds), and
may demand a higher credit and liquidity premium. Although around 10 African countries have issued
Eurobonds in the last few years, only the bonds of Gabon, Ghana, Nigeria and South Africa mature in
the near to medium term (2014 and 2018) (figure 14). Many of the issuers have taken advantage of the
favorable market conditions and have issued debt with maturities beyond 2018. For this reason, interest
rate shocks do not have an immediate impact, except in countries that need to refinance in the medium
term (Ghana) or are expected to issue soon (Kenya).

A F R I C A S P U L S E

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17

BOX 3:
Continued

FIGURE 14: Eurobond redemptions by African countries

US$ Billion

12

60

Redemption 2014 18 (US$ bn)


Total Eurobond stock (US$ bn)

10

50

Redemption (% of total, right axis)

Source: Aykut 2014, based on Dealogic, Moodys, and Bloomberg.

Rwanda

0
Namibia

0
Senegal

10

Tanzania

Zambia

20

Mozambique

South Africa

30

Nigeria

Ghana

40

Gabon

Attracted by relatively high interest rates


compared to global rates, nonresident
investors have increasingly entered a
number of Sub-Saharan local government
bond markets. Not all of these markets can
be considered subject to global interest
rate shocks though. Here the transmission
channel of global interest rates is indirect.
If nonresident investors do not reinvest in
government securities upon maturity, the
government may need to sell its bonds to
domestic investors, and may need to offer
higher interest rates to attract domestic
and new nonresident investors. The speed
of adjustment of domestic interest rates
depends on the share of domestic debt
maturing in the short term (or inversely on
average time to maturity of the domestic
debt portfolio). That is, the higher the share
of debt maturing, the faster interest rates
will adjust upward.

Data on nonresident participation in domestic markets in Sub-Saharan Africa are difficult to find, but
available data suggest that South Africa has the highest participation (37 percent of outstanding domestic
debt as of 2013Q2),c while in Uganda about 10 percent of domestic debt is held by nonresidents.d
Furthermore, Ghana, Kenya, Nigeria, and Zambia may have significant nonresident participation.e In these
countries, between 30 and 50 percent of domestic debt is rolled over every year.f
Once a nonresident investor decides not to refinance Eurobonds or domestic bonds due to better
alternatives elsewhere, this will amount to a capital outflow, and may lead to pressure on the exchange
rate. Any subsequent exchange rate depreciation will increase the domestic currency value of the all public
or private loans in foreign currency, and increase the effective interest paid on these loans. The main risk is
therefore the total size of external private and public debt relative to GDP.
A countrys resilience to absorb interest rate shocks will depend on the extent of policy buffers, such as
having relatively low public debt, sufficient fiscal resources, sufficient foreign exchange reserves to repay
all external debt maturing in one year, and a well-aligned exchange rate. In addition, it is also important to
have structural resilience, such as access to multiple sources of external and domestic financing on favorable
terms; good currency match between assets and liabilities on the government, private sector, and household
balance sheets; and sound debt management.
Prepared by Ralph Van Doorn:
a. The interest rate risk is not zero. These loans typically have a long amortization (repayment) profile, and in principle each time an amortization takes place, the
government must choose whether to repay from the budget or refinance it. At that stage, there is both a risk that these funds are not available (refinancing
risk) and a risk that the interest rate may be less favorable than before (interest rate risk). However, since individual amortizations are small relative to the size
of the loan, interest rate and refinancing risks are small.
b. London Interbank Offered Rate.
c. Even when compared to other emerging markets. Only Hungary, Latvia, and Peru have higher participation (Arslanalp and Tsuda 2014).
d. World Bank Quarterly Public Sector Debt (QPSD) statistics; http://go.worldbank.org/9PIAZORON0.
e. It is known that nonresident investors can legally enter these markets, and there is anecdotal evidence that this is the case, but firm data are not available.
The blog http://www.brookings.edu/blogs/africa-in-focus/posts/2014/02/07-africa-market-turmoil-sy quotes numbers obtained from Fitch and national
authorities, roughly in line with the numbers for South Africa (IMF data) and Uganda (World Bank data), but they cannot be verified.
f. Data from recent Debt Sustainability Analyses (DSAs).

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A F R I C A S P U L S E

Domestic risks
Domestic risks associated with social and political unrest, and emerging security problems, remain a
major threat to the economic prospects of some countries in the region. In South Sudan, a ceasefire,
signed between the conflicting sides on January 23, 2014, remains tenuous, and sporadic violence
has continued to disrupt oil production. In the Central African Republic, insecurity and large-scale
displacement of persons are severely disrupting economic activity and livelihoods there. Also on the
domestic front, upcoming national elections in several countries may slow implementation of muchneeded structural reforms.
Inflationary pressures are on the rise in many countries and could weigh down domestic demand. In
2013, inflation eased in most countries in the region due to lower international fuel and food prices and
better-than-average harvests as weather conditions remained broadly favorable, which helped boost real
income and support domestic demand. Since February 2014, international food prices have risen sharply
due to drought in part of South America and tensions in Ukraine. Within Sub-Saharan Africa, strong price
pressures have emerged in several countries driven in part by large currency depreciations, as in Ghana
and Zambia, and also by unfavorable weather conditions. In francophone West Africa, drought in 2013
resulted in crop losses of up to 50 percent in parts of the Sahel region. Larger currency depreciations and
lower local harvests due to intensifying drought conditions could result in higher inflation across the
region than assumed in the baseline. This would dampen household consumption which has been an
important driver of growth in the region.

Food prices
The World Banks Food Price Watch reports that domestic grain price trends are mixed in Sub-Saharan
Africa. Several factors affect local prices: seasonal patterns, available supplies and prospects of upcoming
harvests, currency depreciations, and demand conditions (box 4). In Sudan, increasing demand and
currency depreciation pushed up wheat prices by 30 percent (in monitored markets) between October
2013 and January 2014. In Malawi, Mozambique, and South Africa, domestic maize prices were higher by
more than 40 percent on tighter supplies, rising fuel prices, and weaker currencies (in Malawi and South
Africa). Tanzania also saw a 26 percent increase because of lower national supplies. By contrast, wheat
and maize prices declined in Ethiopia, as the recent bumper crop boosted domestic availability. Staple
food prices remained high in Somalia and South Sudan as renewed conflict is disrupting markets in
those countries.
Fluctuations in food prices have typically exerted pressures on consumer price inflation. A nonnegligible proportion of food price volatility is attributed to seasonal factors in the production of these
commodities. Box 4 illustrates the relative weight of these seasonal factors in selected Sub-Saharan
African countries. On the other hand, food price volatility may also respond to structural factors that may
put food security at risk. The report illustrates the role of trade promotion in addressing the structural
bottlenecks in the African drylands.

A F R I C A S P U L S E

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19

BOX 4:
Not all price
volatility is
uncertain:
Seasonality in
food prices

Following the 200708 global food crisis, food price volatility has been high on the international policy
agenda. Volatility implies uncertainty and reduces a supply response. But not all volatility in food prices is
uncertain. Some of it follows the annual production cycle. It is seasonal (and largely deterministic), with
prices dropping after the harvest to gradually rise and peak just before the next harvest arrives.
Some seasonality in food prices is unavoidable given storage costs and the opportunity cost of capital. But
imperfect capital markets (inducing sell-low, buy-high behavior among liquidity-constrained households),
uncompetitive market structures, credit constraints for traders, and high transaction costs (e.g., due to
poor infrastructure) may further push up the seasonal price gaps. As domestic food markets became
more integrated, the topic of food price seasonality in Sub-Saharan Africa has garnered less attention by
researchers and policy makers.
Some emerging evidence, however, points to continuing high seasonality in domestic food prices in the
region. Using econometric time series techniques, Kaminski et al. (2014) study the domestic food price
evolutions over the last 7 to 12 years (200012) across 100 marketplaces in three eastern and southern
African countries (Malawi, Tanzania, and Uganda) for a series of food products.a
Among cereals, the seasonal gap (the difference between the highest and the lowest average monthly price,
controlling for annual trends), is largest for wholesale maize (main staple),b ranging from about 25 percent
on average across markets in Uganda and Tanzania to close to 50 percent in Malawi (figure 15). The average
gaps are lower for rice, millet, and sorghum (around 15 to 20 percent), consistent with the larger integration
in international markets (rice) and better storability (millet/sorghum) (World Bank 2011b). They are generally
also somewhat lower for retail prices.
Overall, these seasonal gaps are substantial, and well above what is observed, for example, at the South
African Futures Exchange (SAFEX) market in Johannesburg. SAFEX is the main international market for white
maize consumed in southern and eastern Africa and, as such, provides a reasonable benchmark. While the
seasonal patterns in Tanzania and Malawi closely track the seasonal SAFEX profile (with a two-month and
one-month lag, respectively), the gaps in SAFEX prices are only around half those in Tanzania and less than
a third of that in Malawi. This suggests substantial scope for reduction in the seasonal gaps.
So, how much of monthly food price
volatility in these domestic markets
can then be explained by seasonality?
Between 20 percent (Tanzania) and 40
percent (Malawi) for wholesale maize,
with similar seasonal volatility shares for
other food crops in Tanzania (between
15 and 22 percent of month-to-month
volatility). Clearly, this emerging
evidence suggests that seasonality in
food prices is an important part of the
food price volatility story.

FIGURE 15: Seasonal pattern in maize prices


Seasonal
maize gaps far
Percent
exceed those
30
at SAFEX, the
leading futures
Tanzania: Gap = 24.3%, SAFEX correlation
(two month lag) = 0.946
market for
20
white maize
in eastern and
10
southern Africa

0
-10
-20
-30

SAFEX: Gap = 13.1%


Malawi: Gap = 47.9%, SAFEX
correlation (one month lag) = 0.892
Jan

Feb

Mar

Apr
Safex

May

Jun

Malawi

Source: Kaminski, Christiaensen, Gilbert, and Udry 2014.

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A F R I C A S P U L S E

Jul

Aug

Sep

Tanzania

Oct

Nov

Dec

Seasonality in food prices may also


yield significant welfare loss in terms
of reduced food consumption in the
short term and reduced income-earning
potential in the long termc. Using
one survey year for each of the three
countries in the study, the authors find

evidence suggestive of a connection between food price seasonality and seasonality in food (and nonfood)
consumption. Figure 16 shows the pattern for Tanzania (see Kaminski et al. 2014, for details). Both food and
nonfood expenditures are in real terms (expressing quantities), and they track the share-weighted staple
priceswhen food prices are above the (de-trended) annual average, food (and nonfood) consumption
(as a percentage of total consumption) are lower, and when food prices are lower, food (and nonfood)
consumption are higher,
with the patterns crossing
FIGURE 16: Pattern of food staple price and consumption in Tanzania
again in December. The
joint decline in nonfood
15%
and food expenditures
suggests some substitution
10%
of the latter for the
5%
former, but not enough
to prevent a decline in
0%
food expenditure, the core
variable of interest from a
-5%
welfare perspective. While
these juxtapositions are
-10%
exploratory at best, the
findings are suggestive
-15%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
of continuing seasonality
Contribution of food consumption to total consumption change
Month price effects (staple index)
in African livelihoods, in
Contribution of non-food consumption to total consumption change
prices, and consumption,
Source: Kaminski, Christiaensen, Gilbert, and Udry 2014.
a topic in need of further
a. The study is part of a larger project entitled Agriculture in Africa Telling Facts from Myths, which revisits the current validity
documentation and more
of the conventional wisdom describing agriculture and rural livelihoods in Sub-Saharan Africa.
b. Maizes share of staple food consumption is 47 percent on average in Tanzania (51 percent in rural areas), 68 percent in Malawi
in-depth understanding,
(72 percent in rural areas), and 20 percent in Uganda (also 20 percent in rural areas); in Uganda matooke (cooked banana) and
cassava each account for another 22 percent. Rice is more important in urban areas (31 percent of the average urban staple
including on its causal
share in Tanzania and 14 percent in Malawi and Uganda) (Kaminski et al. 2014).
c. See World Bank (2011a) for a more detailed review of the welfare effects of food price volatility.
drivers.

BOX 4:
Continued

Intra-annual
consumption
pattern tracks
staple price
seasonality in
Tanzania

Using trade to promote resilience in drylands of Africa 2


Africas drylands regions are subject to especially high and volatile food prices, which reduce food
security. Improved trade can reduce the wedge between producer and consumer prices, increasing
the welfare of consumers in structural deficit areas where food prices are high, and of producers in
surplus areas where farm gate prices are relatively low. Furthermore, drylands areas are particularly
vulnerable to disasters (climatic and man-made) and food production shocks. Increasing integration
with larger regional markets can reduce the magnitude of the price effects from localized shocks, while
lower barriers and better trade infrastructure allow faster and more efficient response to localized food
shortages due to disasters of all types.
Trade is a necessary ingredient to resolve chronically low agricultural productivity. Technology embodied
in imported inputsseed of improved crop varieties, fertilizer, agricultural machinery, and animal

2 See the background paper for the study, Increasing Resilience in the Drylands of Africa. The background paper draws on a number of sources, but particularly on Analytical Review
of the History, Impact, and Political Economy of Barriers to Food Trade in Sub-Saharan Africa, by Jakob Engel and Marie-Agnes Jouanjean with Akanksha Awal, of the Overseas
Development Institute.

A F R I C A S P U L S E

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21

vaccineswould pave the way for more intensive production systems with increased productivity and
greater sustainability (Jouanjean 2013). In addition, facilitation of trade in crops, livestock, and inputs
brings the prospect of a significant number of new jobs in these regions, where unemployment is high.
Jobs are created in activities all along the value chain in transporting, distributing, wholesaling, and
retailing agricultural inputs and products.
Notwithstanding the benefits of increased integration, markets in many drylands areas remain
fragmented, isolated from regional and global markets. One indication of this in West Africa is that cereal
prices differ dramatically between net producing and net consuming markets. Prices of food staples are
much more volatile between markets on either side of a border than between markets within a country.
This pattern of volatility suggests a very low level of trade integration among these countries.
Several factors explain why markets in drylands are so fragmented. First, costs of transporting food
are high relative to their low value per ton. Along key trading corridors between Burkina Faso,
Ghana, and Benin, costs of moving maize account for approximately 59 percent of final market prices
due to monopoly and cartel rents, irregular payments, and poor and scarce infrastructure (USAID
2011). In some localities, poor quality or quantity of infrastructurefor example, failure to make
last mile connectionscreates areas with high natural production potential but low connectivity,
reducing opportunities for efficiently and sustainably raising food production and promoting rural
development. These hot spots merit consideration for future infrastructure investment.
Second, formal direct trade barriers are also a problem. Nontariff measures pose a much more
significant problem than tariffs. For example, traders pay as many as 40 different nontariff fees when
traveling from Ghana to Nigeria (Keyser 2012). Ad-hoc food trade barriers imposed during times of
crisisespecially export banshave been a particular problem. Such barriers increase the magnitude
of food price shocks in neighboring countries and reduce the reliability of regional suppliers. Grain
prices in African countries are twice as volatile as in international markets (Minot 2013), largely because
of the large-scale and unpredictable interventions in food markets. These policies expose private
traders to huge risk, discouraging desirable arbitrage functions such as purchasing, storage, and
transporting of grain (Jayne et al. 2010).
Third, regulatory and behind-the-border policies create additional indirect trade barriers and impede
technology flows. Unnecessary and unreasonable regulatory requirements for imported inputs have
created small, highly fragmented markets, which is discouraging international firms from entering,
reducing the flow of imported technologies. Instead of reforming regulations that stifle trade in inputs,
efforts to expand input use have so far focused mainly on measures to either directly intervene in input
marketing or provide heavy, and usually untargeted, subsidies. These measures prevent private sector
development in input markets and crowd out more effective programs of public expenditure (see Jayne
and Rashid 2013, for an overview).

22

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A F R I C A S P U L S E

Several options are available to reduce trade barriers and promote market integration in input and
commodity markets of Africas drylands region. These include reforming regulations to integrate markets
and facilitate technology flows; reducing or eliminating nontariff measures; improving national data
systems to provide governments with information to make decisions based on transparent rules and
evidence; continuing to address trade liberalization through regional economic communities (RECs), but
also use other vehicles; understanding and facilitating informal trade; and upgrading roads, reducing
border-crossing costs, and increasing border crossings.

A F R I C A S P U L S E

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23

Section 2: Patterns of Growth in Sub-Saharan Africa


u The

economies of Sub-Saharan Africa grew at a strong pace of 4.5 percent a year on average during
1995-2013, amid broad-based growth, but per capita income growth was modest at around 2 percent.

u GDP

growth (median annual rate) was nearly four times higher in the regions fast-growing countries
than in slow-growing ones. Among best performers, resource-rich and non-resource-rich countries
had comparable growth rates.

u For

both fast- and slow-growing countries, economic activity was supported by a robust increase in
domestic investment: Gross capital formation (per capita) increased at an annual rate of 6.1 percent
among fast-growing countries and 3.1 percent for countries with weak growth.

u The

resources and services sectors have gained output share in the structural change in Sub- Saharan
Africas best performers: The share of the resources sector rose from 9 percent during 1995-99 to 12.5
percent during 2007-11, while that of the services sector grew from 40 percent to 47 percent. The
shares of manufacturing and agriculture declined.

u The

contribution of total factor productivity (TFP) to per worker output growth is relatively larger
in Sub- Saharan Africas best performers than in fast-growing developing countries elsewhere; the
regions slow-growing countries show negative TFP growth throughout the period.

u The pace of expansion in recent growth spurts in the region has been faster and less volatile than in

earlier periods and higher than in takeoffs in other developing countries; output expansions are larger
and more volatile during takeoffs in the regions resource-rich countries than in non-resource-rich ones.
u Export

diversification has been limited, mirroring sectoral shifts in the regions economies, but there
has been substantial progress in diversifying trading partners.

ECONOMIC GROWTH TRENDS IN SUB-SAHARAN AFRICA


The recent economic performance in Sub-Saharan Africa (SSA) has been remarkable. Real GDP in the
region grew 4.5 percent per year during 19952013, and the benefits from this surge were broad based,
since they were reaped not only by resource-rich countries but also by non-resource-rich low-income
countries. Economic activity grew 4.8 percent in the region in 2013 and is projected to increase at an
average annual rate of about 5.4 percent during 201416 (see section 1).
The sustained growth in Sub-Saharan Africa since the mid-1990s has raised real income per capita to
levels that surpassed the 1976 peak (figure 17).1 Moreover, income per capita of the region relative to the
Euro area appears to have stopped sliding at the start of the 2000s and to have slightly improved over
the last decademost notably, among the regions fast-growing countries (figure 18).2 The improved
economic performance of Sub-Saharan Africa since 1995 was partly attributed to generally benign
external factors and progress in macroeconomic management (see Hostland and Giugale 2013).
1 It has taken the region nearly three decades to surpass the previous peak in income levels.
2 Growth deceleration has become less frequent in Sub-Saharan Africa, declining from 29 percent during 197594 to 12 percent during 19952005. The frequency of growth accelerations
increased, however, from 14 to 42 percent over the same time period (Arbache and Page 2009).

24

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A F R I C A S P U L S E

FIGURE 17: Real GDP per capita in Sub-Saharan Africa,


19602012

6.95

6.85
6.80
6.75
6.70

Growth in
Sub-Saharan
Africa since
the mid-1990s
has raised real
income per
capita to levels
that surpassed
the 1976 peak

6.65
6.60
6.55
6.50
6.45

1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012

Real GDP per capita in US$ at 2005 prices (in logs)

6.90

Actual

Trend

FIGURE 18: Real income per capita of Sub-Saharan


Africa relative to the Euro area
0.14
0.12
0.10

Income
per capita
relative to
the Euro area
has slightly
improved over
the last decade

0.08
0.06
0.04
0.02
0.00

1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012

Income per capita ratio relative to the Euro Area

On the external front, growth performance in


the region was boosted by rising commodity
prices, the emergence of China as an
important trade and investment partner, and
the surge of foreign capital into developing
countries due to accommodative monetary
policies in the advanced world. On the
domestic front, improved macroeconomic
management in the region has resulted in
lower inflation, better fiscal outcomes, and
lower growth volatility. More important, crisis
volatility was sharply reduced as the region
became less susceptible to macroeconomic
disasters. For instance, the incidence of sharp
declines in real output per capita (peak-totrough drops that exceeded 10 percent) was
reduced from 36 percent during 197494 to
approximately 18 percent during 19952011,
and this trend also holds for non-resourcerich countries, resource-rich countries, and
fragile countries in the region. Furthermore,
the duration and depth of recessions also
declined not only for the region as a whole
but also in non-resource-rich and resourcerich countries. On average, the duration of
recessions across the region dropped from
2.2 years during 197494 to 1.9 years during
19952011, while the median contraction
declined from 9.3 percent during 197494 to
5.4 percent during 19952012.

Sub-Saharan Africa (SSA)

Slow-growing SSA

Fast-growing SSA

Over the last two decades, real economic


activity in the region more than doubled.
Source: World Bank.
Note: The data of real GDP for Sub-Saharan Africa and the Euro area are expressed in
The yearly pace of GDP growth among
U.S. dollars at 2005 prices.
Sub-Saharan African countries (4.5 percent)
has been comparable to that of developing
countries outside the region (4.4 percent), and has been outperformed only by East Asia and the Pacific
(5.1 percent). The growth surge in the region was broad based: The regions resource-rich countries grew
at 5 percent per year during 19952012, while non-resource-rich countries grew at an average annual
rate of 4 percent (figure 19).
Real GDP growth in Sub-Saharan Africa was supported by robust domestic demandparticularly, higher
household consumption and (private and public) investment; in fact, gross capital formation increased
at an annual rate of 6.8 percent. Domestic investment in 2012 was nearly triple the 1995 level. In contrast
to other developing areas, investment in the region continued growing throughout the 200809 crises,

A F R I C A S P U L S E

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25

Over the last


two decades,
real economic
activity in the
region more
than doubled

FIGURE 19: Real GDP growth, 19952012


Percent

12
10
8
6
4
2
0

1995

1997

1999

2001

2003

2005

2007

2009

2011

-2
-4
-6

The yearly pace


of GDP per
capita growth
in Sub-Saharan
Africa has been
comparable
to that of
developing
countries
outside the
region

Developing Countries (excl. SSA)

East Asia & the Pacific

Sub-Saharan Africa (SSA)

and it benefited
not only resourceintensive countries
but also others that
are specialized in
nonresource sectors. In
fact, investment grew
faster among resourcerich countries (8.1
percent per year) than
among non-resourcerich countries (6.3
percent per year).

Once population
dynamics are taken
Percent
into account, the
8
7
economic performance
6
of Sub-Saharan
5
African countries does
4
not appear to be as
3
impressive (figure 20).
2
Growth in real output
1
per capita increased
0
1995
1997
1999
2001
2003
2005
2007
2009
2011
-1
from -0.6 percent per
-2
year during 197494
-3
Developing Countries (excl. SSA)
East Asia & the Pacific
Sub-Saharan Africa (SSA)
to 2.1 percent per year
during 19952012,
Source: World Bank.
Note: The data on real GDP and real GDP per capita are expressed in U.S. dollars at 2005 prices.
and this turnaround in
economic performance
was broad based
throughout the region, although to different degrees. The cumulative growth in output per capita of the
region is comparable to that of Latin America and the Caribbean and lags the performance of real GDP
per capita of developing countries outside of the region (3.3 percent) or East Asia and the Pacific (3.8
percent). Figure 21 shows that there is heterogeneity in the growth performance of Africa across different
subgroups. For instance, median annual expansion of output per capita is faster among resource-rich
countries in the region (2.6 percent) when compared to non-resource-rich countries (1.7 percent), and is
even slower among fragile countries (1.2 percent).
FIGURE 20: Real GDP per capita growth, 19952012

IDENTIFYING PATTERNS OF GROWTH DURING 19952012


The growth of real economic activity in Africa was robust over the last two decades. Yet, it is evident
that there are differences in the growth experiences of countries. Output expanded faster in some
countries and country groups than in others. Country characteristics associated to the structure of
production, advances in structural reforms, the leverage of the country to the world economy, or sound
26

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A F R I C A S P U L S E

A useful way to examine the growth


performance of countries is to
distinguish groups of countries by
their speed of growth during 1995
2012. This can help identify common
characteristics of their growth and broad
differences across groups. Fast-growing
countries are defined as those that have
experienced an expansion in real GDP
per capita that has lasted five years or
more and where output per capita grew
more than 3.5 percent per year.3

FIGURE 21: Growth in GDP per capita in Sub-Saharan


Africa by country groups, 19952012
(Cumulative median growth index, 1995=1.0)

Growth
performance
in Sub-Saharan
Africa is
heterogeneous
across different
subgroups.
For instance,
annual
expansion
of output
per capita is
faster among
resource-rich
countries
and slower
among fragile
countries

1.6
1.5
Cumulative growth index (1995=1.0)

macroeconomic frameworks may have


played a role in explaining cross-country
differences in performance.

1.4
1.3
1.2
1.1
1.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

SSA

Resource-rich

Non-resource-rich

Fragile

Non-fragile

The application of this criterion


Source: World Bank.
identifies 22 fast-growing countries in
Note: The index presented in this figure depicts the cumulative growth in real growth per capita
from 1995 to 2012 in Sub-Saharan Africa and subgroups. GDP is in U.S. dollars at 2005 prices.
the Africa region that were experiencing
or starting to experience a surge in
economic activity during the last two
decades. From this sample, we identify five oil exporters (Angola, Chad, Equatorial Guinea, Nigeria, and
Sudan) and eight nonoil resource-abundant countries (Botswana, Ghana, Liberia, Mozambique, Namibia,
Sierra Leone, Tanzania, and Zambia). Nine non-resource-rich countries in the region experienced growth
spurts (Burkina Faso, Cabo Verde, The Central African Republic, Ethiopia, Lesotho, Malawi, Mauritius,
Rwanda, and Uganda). Takeoffs in growth per capita also took place among fragile countries although, as
expected, they tend to be relatively shorter in duration (or started later).4
Table 1 depicts the median growth rate from 1995 to 2012 for the fast-growing developing countries
compared to slow-growing countries. Within each group, the performance of Sub-Saharan Africa
compared to developing countries outside the region is benchmarked, and African countries are also
distinguished according to their degree of natural resource abundance. The representative fast-growing
country in Africa grew at the same pace as that of the median country in the developing world outside
the region, but slower than the fast-growing countries in the latter group.5 The best performers in Africa
registered a median annual growth rate of 3.3 percent per year (lower than the 3.9 percent of the best
developing country performers outside Sub-Saharan Africa). In contrast, the slow-growing countries in
the region were able to grow at a median annual rate of 0.9 percent during 19952012.

3 It is likely that we may be able to identify two close episodes of rapid growth in one country using this algorithm. We will consider these two episodes as one when (a) the decline in real
output per capita between them is lower than 1 percent, (b) the annual average growth in both episodes exceeds 3.5 percent, or (c) the annual average growth in the joint single episode
exceeds 3.5 percent. In addition, we have considered countries with long-lasting expansions (more than 10 years) that had growth per capita greater than 3 percent and GDP growth
during that period exceeding 5 percent per year.
4 The criteria used to distinguish fast-growing from slow-growing nations has also been used in Bluedorn et al. (2013) and IMF (2013). Bluedorn et al. (2013) points out that the threshold
of 3.5 percent per year has been used in studies such as Hausmann, Pritchett, and Rodrik (2005) and Johnson, Ostry, and Subramanian (2007), and corresponds to the 60th percentile
of growth in output per capita in all emerging market and developing countries over the last two decades. In our sample, the 3.5 percent per year threshold corresponds to the 67th
percentile of the distribution of growth per capita among non-high-income countries during 19952012.
5 Simple averages indicate that Sub-Saharan Africa grew 6.6 percent annually during 19952012, with resource-rich countries growing at an average annual rate of 7.4 percent and nonresource-rich countries at 5.5 percent. The larger size of the unweighted average growth (relative to the median and weighted average) denotes the remarkable performance of small
(resource and nonresource) countries in the region.

A F R I C A S P U L S E

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27

TABLE 1: Real GDP and aggregate demand in Sub-Saharan Africa and the developing world, 19952012
(Median annual growth rate over the period)

Countries

Real
GDP

Private
Domestic
Public
Consumption Investment Consumption

Exports

Imports

Fast growing countries


Developing
world
(excl. SSA)

58

3.93

3.80

5.46

2.83

6.04

6.31

Sub-Saharan
Africa (SSA)

22

3.30

3.03

6.15

3.34

6.03

6.07

SSA ResourceRich Countries

13

3.05

3.77

7.94

3.38

6.36

8.47

SSA NonResource-Rich
Countries

3.27

2.87

5.03

2.88

5.62

3.86

Developing
world (excl. SSA)

25

2.03

2.19

2.66

1.88

3.36

3.69

Sub-Saharan
Africa (SSA)

22

0.90

1.28

3.11

1.13

0.37

2.13

SSA ResourceRich Countries

1.03

1.37

3.52

1.65

0.76

2.45

SSA NonResource-Rich
Countries

14

0.90

0.89

1.82

0.89

0.48

1.72

Slow growing countries

Source: World Bank.


Note: The data on real GDP per capita and the aggregate demand components are expressed in U.S. dollars at 2005 constant prices. All variables are in per capita terms.
The criteria used to classify fast-growing countries comprises: a) expansionary episodes of more than 5 years, and b) growth per year that exceeds 3.5 percent in each episode.

Growth patterns in Sub-Saharan Africa: Domestic-demand driven or outward oriented?


The evolution of aggregate demand componentshousehold consumption, domestic investment,
government consumption, exports and importsduring 19952012 helps to assess whether growth in
Sub-Saharan Africa countries was supported by domestic demand or net exports and how different were
the experience of fast and slow growers and of resource-rich and non-resource-rich countries. Figure 22
shows the cumulative growth over the period for African countries with strong and weak growth, and for
fast-growing natural-resource-abundant countries and non-resource-rich countries in the region.
Regardless of whether growth was strong or weak among African countries, real economic activity was
supported by a robust increase in domestic investment. Gross capital formation (per capita) increased at
an annual rate of 6.1 percent among fast-growing countries in the region and 3.1 percent for countries
with weak growth per capita. In addition, exports and imports had a predominant role in explaining
growth performance of the best performers in the developing world. In most cases, imports tended
to outgrow exports, thus, either widening trade deficits or shifting trade surpluses into deficits in most
developing countries. For instance, imports grew slightly faster than that of exports during 19952012
(6.1 and 6 percent per year, respectively). However, the growth differential between imports and exports
was much larger for resource-rich countries (8.5 and 6.4 percent per year, respectively).

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A F R I C A S P U L S E

FIGURE 22: Expansion in aggregate demand in Sub-Saharan Africa by country groups, 19952012
(Cumulative variation since 1995, median growth)
Panel B: Slow-growing SSA countries
2.8

2.6

2.6

2.8
2.4

2.8
2.4

Cumulative growth
Cumulative
indexgrowth
(1995=1.0)
index (1995=1.0)

2.8

2.6
2.2
2.4
2.0
2.2
1.8
2.0
1.6
1.8
1.4
1.6
1.2
1.4
1.0

1.6
1.2
1.4
1.0

0.8
4.0

2.5
3.0

2.0
2.5

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

1.5
2.0

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
C

Panel D: Fast-growing
C
Inon-resource-rich
G
X SSA countries
M
Cumulative growth
Cumulative
indexgrowth
(1995=1.0)
index (1995=1.0)

3.0
3.5

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Cumulative growth
Cumulative
indexgrowth
(1995=1.0)
index (1995=1.0)

3.5
4.0

1.0

1.8
1.4

1.0

Panel C: Fast-growing
SSA
C
I resource-rich
G
X countries
M

1.0
1.5

2.0
1.6

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

4.0

2.2
1.8

3.5
4.0

3.0
3.5

2.5
3.0

2.0
2.5

1.5
2.0

1.0
1.5

1.0

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

0.8

2.4
2.0

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

1.0

2.6
2.2

1.2
0.8

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

1.2
0.8

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Cumulative growth
Cumulative
indexgrowth
(1995=1.0)
index (1995=1.0)

Panel A: Fast-growing SSA countries

Real economic
activity in SubSaharan African
countries
has been
supported by a
robust increase
in domestic
investment

Source: World Bank.


Note: The data on the components of aggregate demand (household consumption, investment, government consumption expenditure, exports and imports) are expressed in U.S.
dollars at 2005 prices.

A F R I C A S P U L S E

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29

Sectoral contribution to growth performance in Sub-Saharan Africa


The behavior of different sectors of economic activity during the last two decades is examined in order
to identify the sectors of economic activity that grew faster among Sub-Saharan Africa and the rest of
the developing world. This analysis is done at two different levels: first the major sectors of economic
activityagriculture, manufacturing, resources, and servicesare reviewed. Then, we look more deeply
into the dynamics of both the industry sectornamely, manufacturing, construction, mining and
quarrying, and electricity, gas, and waterand the services sectorthat is, banking, wholesale and retail
trade, and transportation, storage, and telecommunications.
Figure 23 focuses on the output growth of major sectors of economic activity and the evolution of
their shares of GDP for fast-growing countries during 19952012.6 Growth among fast-growing nations
(whether they are African or outside the region) was broad based. All types of activity had positive
growth, although there are some differences in their pace. For Sub-Saharan African countries, the
resources and the services sectors were the best performersincreasing at annual rates of 7.2 and 6
percent per year, respectively. Moreover, those two sectors also experience an increase in their share to
GDP over the last two decades: the share of the resources sector went from 9 percent during 199599
to 12.5 percent during 200711, while the share of the services sector grew from 40 percent during
199599 to 47 percent during 200711. Correspondingly, the shares of manufacturing and agriculture in
the region (sectors with the slowest growth over the last two decades) declined.
For developing countries outside the region, the analysis shows that the resources and services
sectors also exhibit the largest median growth rates per year during 19952012 (5.2 and 5.3 percent,
respectively); however, they increased at a slower pace than that of countries in Sub-Saharan Africa.
In contrast to countries in the region, the rest of the developing world has a larger services and
manufacturing sector. The former increases its share even more (from 53 percent of GDP during 199599
to 58.5 percent of GDP during 200711), while the importance of manufacturing in total value added
decreases from 18 to 16 percent. In both groups of countries, the share of agriculture in total GDP
declines from 13 to 9 percent among fast-growing developing nations and from 36 to 29 percent in SubSaharan Africa over the same period.
Figure 24 examines the subsectors within resources and services that may explain the growing share
of GDP of these sectors among the fast-growing countries during 19952012. Within the resources
sector, construction and mining and quarrying vastly outperform gas, electricity, and water (as well as
manufacturing). Construction expanded over the period at an annual rate of 8.5 percent, while mining
and quarrying grew 7.2 percent per year. Among developing countries outside the region, it is the gas,
electricity, and water sector that outperforms all other activities within the resources sector (it grew at
an annual rate of 5.1 percent), closely followed by construction (4.9 percent). Finally, the infrastructure
sector (transport, storage, and telecommunications) drove the rising participation of the services sector
in economic activity among fast-growing developing countries. It grew 7.2 percent per year among
fast-growing Sub-Saharan African countries and 6.2 percent per year among fast-growing developing
countries outside the region.
6 We also conducted our analysis for slow-growing countries. Although we do not report these results, we will describe some of their features if relevant to our discussion.

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A F R I C A S P U L S E

50

3.0
3.5

40
50

2.5
3.0

30
40

2.0
2.5
1.5
2.0
1.0
1.5

Manufacturing

Resources

Manufacturing

0
60

Agriculture

Manufacturing
1995-99

Resources

Services

2007-11
Resources

Services

2007-11

Panel D: Sector shares in other fast-growing


developing countries

50
60
Percent of GDPPercent of GDP

2.0
2.4
1.8
2.2
1.6
2.0
1.4
1.8
1.2
1.6
1.0
1.4
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Cumulative growth
Cumulative
indexgrowth
(1995=1.0)
index (1995=1.0)

Agriculture

Services

2.2
2.6

1.0

10
20

1995-99

Manufacturing
Resources
Services
2.6 Agriculture
Panel C: Sectoral growth in other fast-growing
2.4
developing countries

0.8
1.2

20
30

100

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

1.0 Agriculture

For SubSaharan African


countries, the
resources and
the services
sectors were
the best
performers
increasing at
annual rates
of 7.2 and
6 percent
per year,
respectively,
during
19952012

Panel B: Sector shares in fast-growing


SSA countries

Percent of GDPPercent of GDP

Panel A: Sectoral growth in fast-growing


SSA countries
3.5

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Cumulative growth
Cumulative
indexgrowth
(1995=1.0)
index (1995=1.0)

FIGURE 23: Sectoral growth and the evolution of shares among fast-growing countries, 19952012
(Cumulative median variation since 1995 and shares of GDP)

Manufacturing

Resources

Agriculture

Manufacturing

Resources

30
40
20
30
10
20
0
10

Agriculture

Services

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

0.8 Agriculture

40
50

Services

Manufacturing
1995-99

Agriculture

Manufacturing
1995-99

Resources

Services

2007-11
Resources

Services

2007-11

Source: World Bank.


Note: The data of the shares of agriculture, manufacturing, resources, and services are obtained from the World Banks World Development Indicators. Resources sector includes
construction, mining and quarrying, and gas, electricity, and water.

A F R I C A S P U L S E

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31

FIGURE 24: Growth of the components of resources and services sectors, 19952012
(Percent per year over 19952012)

10
9
8
7
6
5
4
3
2
1
0

Panel B: Services sector

Median annual growth (%)

Panel A: Resources sector

Median annual growth (%)

Different
components
explain the
growing share
of GDP of
these sectors
among
fast-growing
countries
during
19952012

Fast growing

Slow growing Fast growing

Developing Countries
(excl. SSA)
Construction

Slow growing

Fast,
Resource
Rich

Fast
Nonresource
Rich

Sub-Saharan Africa
Mining and quarrying

Gas, Electricity & Water

9
8
7
6
5
4
3
2
1
0

Fast growing

Slow growing Fast growing

Developing Countries
(excl. SSA)
Banking

Slow growing

Fast,
Resource
Rich

Fast
Nonresource
Rich

Sub-Saharan Africa

Transportation, Storage & Telecom

Wholesale & Retail Trade

Source: World Bank.


Note: The value added of the different activities within the resources and services sectors are expressed in U.S. dollars at 2005 prices.

The analysis of the sectoral composition of Africas growth finds that rapid growth has shifted the
structure of African economies (i.e., sector shares in GDP): The relative size of agriculture in GDP has
shrunk, as has that of manufacturing, while the share of the resources and services sectors has grown.
Indeed, the regions share of manufacturing in GDP is less than half the average for developing countries
Page (2014). These trends are also reflected in the regions continuing reliance on primary commodity
exports (see below). Clearly, Sub-Saharan Africas pattern of structural change is divergent from that of
fast-growing East Asian countries, where structural change was led by manufacturing, with the share of
this sector in total output rising at a fast pace (McMillan and Rodrik 2011; Rodrik 2013).
Analysis of a subset of 11 African countries by de Vries, Timmer, and de Vries (2013) shows that
between1990 and 2010, the sectoral share of employment in Sub-Saharan Africa shifted as well,
declining in agriculture and rising in services. The employment share of market servicesdistribution
and retail traderose especially sharply. The change in shares essentially represents a shift from
a low-productivity activity to a slightly higher-productivity activity (much of the services sector
continues to be characterized by informality).7 While the size of the resources sector has increased
in African countries, the potential of this sector to absorb workers is small (the extractives sector has
high productivity, but it is very capital intensive). Moreover, the backward linkages of this sector are
small as well. Overall, economic transformation characterized by a reallocation of resources from lowproductivity activities such as agriculture into the modern, high-productivity sector has not taken place
in Sub-Saharan Africas growth boom. Several recent studiesthe 2014 African Transformation Report,
de Vries, Timmer, and de Vries (2013), McMillan and Rodrik (2011), Rodrik (2013), and Page (2014)have
highlighted the issue of Africas growth without structural transformation.
7 McMillan and Rodrik, 2011; de Vries, Timmer, and de Vries, 2013; Rodrik, 2013; and Page 2014.

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A F R I C A S P U L S E

Expansions in Sub-Saharan Africa: Capital deepening or productivity growth?


The sectoral drivers of economic performance may differ across different groups of countries within
the region. For instance, surges in the resources sector (most notably, construction and mining and
quarrying) have driven economic performance in the fast-growing countries, whereas that role may have
been played by the services sector in fast-growing developing countries outside the region (say, gas,
electricity and water, and banking). The analysis investigates whether the expansion has been supported
by higher capital formation or enhanced total factor productivity growth, or both (box 5). In addition,
it assesses whether TFP growth behavior is related to the sectors driving the growth spurts in Africa.
Figure 25 depicts the contribution of capital stock and TFP to (median annual) growth of real GDP per
worker during 19952012 for developing countries and Sub-Saharan African countries. By construction,
stronger growth in output per worker is registered by fast-growing countries compared to slowgrowing ones. Interestingly, the results show that (a) slow-growing countries show negative TFP growth
throughout the period; and (b) TFP plays a larger role in fast-growing countries, and its contribution
is relatively larger among fast-growing countries in the region.8 Finally, resource-rich countries in the
region outperform non-resource-rich ones in terms of output per worker growth, and the contribution of
TFP is clearly more significant in the former group.

FIGURE 25: Contribution of the capital stock and TFP to output per worker growth, 19952011
(Median growth rate throughout the period)

Slow-growing
countries show
negative TFP
growth, while
in fast-growing
countries TFP
plays a larger
role

5
Median growth per year (%)

4
3
2
1
0
-1

Fast growing

Slow growing

Fast growing

Developing Countries
(excl. SSA)

Slow growing

Fast, Resource Rich

Fast Nonresource Rich

Sub-Saharan Africa
Capital stock

Total Factor Productivity

Source: World Bank.


Note: The data of output per worker, capital stocks, and the number of workers were taken from Penn World Tables 8.0 (Feenstra, Inklaar, and Timmer 2013).

8 Moreover, we also conducted an analysis of growth accounting in the Africa region over the last two decades that included the evolution of human capital. The stock of human capital was
computed as the weighted average of the share of population that attained and/or completed the different levels of education (primary, secondary and tertiary). The weights correspond
to the returns to education computed by Psacharopoulos (1994). The inclusion of human capital reduces our regional sample to 32 countries in the region, of which 15 are fast-growing
and 17 are slow-growing countries. In spite of the reduced number of countries, the analysis still finds positive TFP growth for the fast-growing African countries (mainly explained by the
surges in TFP of fast-growing resource-rich nations) and negative TFP growth throughout the period among slow-growing countries in the region.

A F R I C A S P U L S E

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33

BOX 5:
Converting
natural
resources into
productive
capital
adjusted net
savings

Africas growth has been fueled in part by its abundant extractive resources. Promoting sustainable
development, however, requires building productive capitalphysical, human, and social. The issue is
how well the region has done in converting its natural resources windfall into wealth broadly measured.
Adjusted net savings, or genuine savings, provides a useful measure of the changes in total wealth. It
adjusts the conventional measure of savings (national net savings) by deducting the extraction of minerals
and environmental depletion and adding investment in human capital.

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

Figure 26 shows that adjusted net savings have been negative in Sub-Saharan Africa since 2004, which
means that the regions growth is being accompanied by a depletion of total wealth. In fact, the gap
between gross and net savings has increased by 31 percent over the last two decades. The declining
trend in the regions adjusted net savings over the last two decades has been driven mostly by large
negative savings in oil-rich countries such as Angola, which had an adjusted net savings of -23 percent of
gross national income (GNI) in 2011. In contrast, diamond-rich Botswana, with adjusted net savings of 20
percent of GNI, has shown that resource-rich countries can put themselves on a sustainable growth path
by investing a larger share of resource
rents in other tangible and intangible
Net savings
FIGURE 26: Gross and adjusted net savings in SSA, % GNI
forms of capital. Ghana and Namibia
have been
also have genuine savings that are
negative in
Percent
Sub-Saharan
larger than conventional savings.
20
Africa since
Nevertheless, cross-country data
15
2004, which
suggest that Africas resource-rich
means that
10
countries tend to have lower adjusted
the regions
net savings than comparable countries
5
growth is being
in the rest of the world. While the
accompanied
0
concept of adjusted net savings does
by a depletion
-5
not take into account the quality or
of total wealth
-10
efficiency of investments in different
forms of capital, it does suggest that
Adjusted net savings (% of GNI)
Gross savings (% of GNI)
Africas resource-rich countries would
need to spend relatively more in
Source: World Bank.
social sectors.

GROWTH SPURTS IN SUB-SAHARAN AFRICA


Several African countries have experienced episodes of rapid and sustained growth, that is, growth
spurts. Growth spurts are defined as trough-to-peak phases of the cycle in real output per capita that
have a duration of at least five years and that the peak of the current expansion is greater than that of
the previous one. In addition, the depth of this spurt, as measured by the growth of real output per
capita per year, is greater than 3.5 percentage points. The troughs and peaks in real GDP per capita are
obtained by implementing the Bry-Boschan algorithm.9

9 Empirical applications of the Bry-Boschan algorithm using annual data to characterize expansions in economic activity and growth spurts can be found in Harding (2002), Abiad et al.
(2012), and Bluedorn et al. (2013). See Annex I for more details.

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A F R I C A S P U L S E

Identifying growth spurts


Growth in real GDP per capita has been higher and less volatile among Sub-Saharan African countries;
however, there is still some degree of heterogeneity across countries. When comparing the performance
of countries during 19952012 to 197494, 32 out of 44 countries in the region registered a higher
growth rate, and the average increase in the growth rate for those countries is nearly 50 basis points per
year. In terms of growth volatility, it declined in the latter period for 28 out of 44 countries in the region,
and growth volatility during 19952012 was approximately 0.6 times that of 197494.
In line with the results outlined in the previous paragraph, Arbache and Page (2009) show that the
frequency of growth decelerations during 19952005 declined relative to 197594 while, more
important, that of growth accelerations increased. Specifically, they found that the share of countryyears of growth acceleration in the region increased from 14 percent during 197594 to 42 percent
during 19952005. They also find that growth accelerations were three times as frequent as growth
decelerations during the latter period, and that the annual average growth rate during these episodes
was nearly 3.8 percent.10 Recent research also shows that some of the fastest-growing countries in
the region during 19952012 are non-resource-rich low-income countries (IMF 2013). It is argued that
these countries grew thanks to a combination of sound macroeconomic policies and sensible structural
reforms.11
One of the stylized facts of the growth experienced in the region is that many countries are
experiencing an ongoing growth spurt or have managed to engineer one during 19952012. Table 2 lists
all (ongoing and new) growth spurts experienced by Sub-Saharan African countries during 19952012.
As can be seen, the occurrence of growth spurts has been broad based: not only have countries that are
abundant in natural resources experienced takeoffs in real output per capita, but so have countries that
have specialized in non-resource-based sectors and fragile countries. Most of the growth spurts in Africa
were still evolving as of 2012.
Figure 27 looks at the incidence of growth spurts in the developing world and in Sub-Saharan
Africa during 19952012. The likelihood of a country having a growth spurt during 19952012 was
monotonically increasing from the late 1990s; however, that frequency declined sharply after the 2008
09 global financial crisis. Despite this decline, the share of country-year episodes that were taking place
in Sub-Saharan Africa increased from 25 to 40 percent. This implies that growth spurts in the region
continued uninterrupted throughout the crisis. When looking at the incidence of spurts across African
countries, it is observed that the incidence of spurts among resource-rich countries was higher during
200208 (12 to 13 countries), thus coinciding with the super cycle of commodity prices.

10 Moreover, Arbache and Page (2009) find that resource-rich countries were more likely to have a growth acceleration than non-resource-rich countries in the region (51 percent compared
to 38 percent).
11 The non-resource-rich lower-income countries identified by the IMF (2013) report are Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda. These countries are also
identified according to our algorithm as fast growing.

A F R I C A S P U L S E

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35

TABLE 2: Fast-growing countries in Sub-Saharan Africa (Ongoing and new growth spurts during 19952012)

Features of Expansionary Phases


Growth (ppa)

Start

End

Duration
(years)

GDP p/c (%)

GDP (%)

Equatorial Guinea

1992

2008

17

15.6

18.8

Angola

1994

2008

15

6.5

9.7

Sudan

1995

18

3.2

4.6

Chad

1997

2005

6.2

9.8

Nigeria

2000

13

5.3

7.9

Liberia

1996

2002

23.1

28.7

Mozambique

1996

17

4.7

7.4

Tanzania

1998

15

3.5

6.2

Botswana

1999

2008

10

3.5

4.9

Ghana

2002

11

4.3

6.8

Namibia

2002

11

3.5

4.9

Sierra Leone

2002

11

5.1

8.2

Zambia

2003

10

3.2

6.0

Liberia

2005

7.2

10.6

Mauritius

1984

29

4.0

4.9

Cabo Verde

1992

21

6.8

8.4

Uganda

1993

20

3.5

6.8

Burkina Faso

1995

18

3.2

6.1

Malawi

1995

1999

4.4

6.6

Rwanda

1995

18

5.7

9.5

Lesotho

2003

10

3.4

4.3

Ethiopia

2004

7.1

9.8

Central African Republic

2006

4.6

6.5

Country Resources
I. Resource rich countries
Oil producers

Non-oil resource abundant

II. Non-resource rich countries

Unfinished expansions as of 2012.

p/c = per capita. PPA = percent per annum.

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A F R I C A S P U L S E

FIGURE 27: Incidence of growth spurts in Sub-Saharan Africa and the developing countries, 19902012
(Number of episodes and percentages)
Panel B: Sub-Saharan Africa

70

40

60

35

25
20

30

50

20

30

15

20

10

10

Percent (%)

25

40

Growth Spurts

Share of SSA countries (RHS)

15
10
5
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

45

Number of country-year observations

80

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Number of country-year observations

Panel A: Developing countries

Resource rich

Growth spurts
in SubSaharan Africa
continued
throughout
the 200809
global financial
crisis. The
incidence of
spurts among
resource-rich
countries was
higher during
200208 (12 to
13 countries),
coinciding with
the super cycle
of commodity
prices

Non-resource rich

Source: World Bank.


Note: The figure depicts the number of countries experiencing growth spurt episodes each year from 1990 to 2012. The data on real GDP per capita used to compute these spurts are
expressed in U.S. dollars at 2005 prices.

Main features of growth spurts


The application of the algorithm to identify growth spurts renders 23 ongoing and new episodes in
Sub-Saharan Africa during 19952012, of which 13 episodes correspond to resource-rich countries and
9 to non-resource-rich countries. For developing countries outside the region, 53 ongoing and new
episodes of growth spurts are identified. Table 3 summarizes the main characteristics of these takeoffs
in per capita growth for countries in the region and other developing countries.
The average duration of growth spurts among fast-growing Sub-Saharan African countries and fastgrowing developing countries is relatively similar (13.4 and 13.3 years, respectively). Moreover, spurts
in output per capita tend to last longer among non-resource-rich countries (15.2 years) than among
resource-rich countries (nearly 12.3 years). During the 23 takeoffs experienced in Africa, the average
growth per year was approximately 6 percentgreater than the 5.2 percent per year during takeoffs
among other developing countries. Comparing spurts among resource-rich and non-resource-rich
countries in the region, the former group grows at a faster pace (6.8 percent per year compared to 4.8
percent), but their growth is more volatile (table 3).

A F R I C A S P U L S E

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37

TABLE 3: Mean features of growth spurts in Sub-Saharan Africa (In years and percent per year)

Fast-growing
Developing
Countries

Fast-growing SSA Countries


All
Countries

Resource
Rich

Non-Resource
Rich

Duration of the growth spurt (in years)


Average

13.3

13.4

12.3

15.2

Std. Dev.

7.1

5.7

3.6

7.9

Median

12

11

11

18

25th percentile

9.0

9.0

9.8

8.0

75th percentile

15.0

18.0

15.5

20.5

Average annual growth in GDP per capita during spurt (%)


Average

5.15

5.99

6.79

4.76

Std. Dev.

1.62

4.57

5.69

1.46

Median

4.76

4.64

4.92

4.39

25th percentile

3.83

3.47

3.47

3.46

75th percentile

5.96

6.54

6.69

6.26

Average annual growth in real GDP during spurt (%)


Average

5.86

8.58

9.60

6.99

Std. Dev.

1.57

5.35

6.58

1.91

Median

5.67

6.80

7.65

6.61

25th percentile

0.05

0.06

0.06

0.06

75th percentile

0.06

0.10

0.10

0.09

60

23

14

No. Spurts
Note: Std. Dev. = standard deviation.

Dynamics of output per capita along expansionary periods


The trajectory of real output per capita during the first decade of the trough-to-peak phase of the
cycle associated to growth spurts is investigated to see how it is associated with (i) the behavior of the
components of aggregate demand, (ii) the behavior of GDP by sector of activity, and (iii) the dynamics
of output and capital stock per worker and total factor productivity. The comparative analysis focuses
on growth spurts in developing countries and Sub-Saharan Africa, and in the case of the latter, also
distinguishes between resource and non-resource-abundant countries.
Real output per capita grows at the same pace for fast-growing countries in the region and among
developing countries outside the region. Growth takeoffs in non-resource-abundant Sub-Saharan African
countries, however, are steeper than among fast-growing developing countries. In fact, real output per
capita grows at an annual rate of 4.14 percent from the previous peak in non-resource-rich countries
in the region, which is slightly higher than fast-growing developing countries outside the region (4.06
percent per year). These countries also outperform resource-rich African countries, which grew 3.6
percent per year.

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A F R I C A S P U L S E

Figure 28 depicts the cumulative growth rate of the different components of aggregate demand
along the growth spurts for the developing world and Sub-Saharan Africa. A sharp boost in domestic
investment and growth of imports that outpace exports appear to characterize the path of fastgrowing developing countries outside the region. In the case of Sub-Saharan Africa, the fast pace of
real economic activity is supported by a sharp increase in (private and public) domestic investment and
balanced growth of exports and imports. Gross capital formation along the first decade of the spurt
grew 6.9 percent per year among African countries, while average annual growth in exports and imports
exceeded 6 percent.
However, while the increase in domestic investment along the spurt was faster in resource-rich than
in non-resource-rich countries (8.2 and 5.1 percent per year, respectively), the growth of exports
outperforms that of imports in the latter group. That is, non-resource-rich countries either reduced
their current account deficits or moved into surplus along the spurt, while the opposite was the case
for resource-rich countries. In non-resource-rich countries, countries like Burkina Faso saw their current
account deficits narrow from -15 to -5 percent of GDP over the last decade. Among resource-rich
countries, some oil and nonoil producers experienced a deterioration of their current accounts. For
instance, Sudan widened its current account deficit from -3.6 percent of GDP in 1995 to -11 percent of
GDP in 2012, while Ghanas deficit over the same period increased from -2 to -12 percent of GDP.

FIGURE 28: Expansion in aggregate demand in growth spurts in fast-growing countries, 19952012

In Sub-Saharan
Africa, the
fast pace of
real economic
activity is
supported by a
sharp increase
in private
and public
domestic
investment
and balanced
growth of
exports and
imports

Period T (=1.0) is the peak in real GDP per capita previous to the start of the expansion
Panel A: Fast-growing Non-SSA developing countries

Panel B: Fast-growing Sub-Saharan Africa

2.4

T+10

T+9

T+8

T+7

0.8

T+6

1.0
T+5

T+10

T+9

T+8

T+7

T+6

T+5

T+4

T+3

T+2

T+1

0.8

1.0

1.2

T+4

1.2

1.4

T+3

1.4

1.6

T+2

1.6

1.8

T+1

1.8

2.0

2.0

2.2

T-1

Cumulative median growth index (previous peak=1.0)

2.2

T-1

Cumulative median growth index (previous peak = 1.0)

2.4

Source: World Bank.


Note: T is the trough in real GDP per capita identified using the Bry-Boschan algorithm to detect turning points applied to annual data.

A F R I C A S P U L S E

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39

During the last two decades of economic performance in Africa, growth was also broad based across
all sectors, although there is some degree of heterogeneity in growth across sectors. Figure 29 shows
the evolution of the sector shares during spurts. Growth in the developing world (excluding African
countries) has occurred with greater shares in the resources and services sectors and declining shares
in both agriculture and manufacturing. In the Africa region, a resources sector boom occurring at the
expense of all other sectors was the norm.

FIGURE 29: Shares of sector activity along growth spurts in fast-growing countries, 19952012
Period T (=1.0) is the peak in real GDP per capita previous to the start of the expansion
Panel A: Fast-growing Non-SSA developing countries

Panel B: Fast-growing Sub-Saharan Africa

1.3

Agriculture

Manufacturing

Resources

Services

Agriculture

Manufacturing

Resources

T+10

T+9

T+8

T+7

T+6

0.7

T+5

0.8

T+4

T+10

T+9

T+8

T+7

T+6

T+5

T+4

T+3

T+2

T+1

0.7

T-1

0.8

0.9

T+3

0.9

1.0

T+2

1.0

1.1

1.1

1.2

T+1

1.2

T-1

Cumulative median growth index (previous peak=1.0)

1.3
Cumulative median growth index (previous peak=1.0)

Median annual
growth of GDP
per worker
among African
countries was
faster during
the spurt (3.5
percent per
year) compared
to the median
annual rate in
the developing
world (3.3
percent)

Services

Source: World Bank.


Note: T is the trough in real GDP per capita identified using the Bry-Boschan algorithm to detect turning points applied to annual data. The figure reports the growth rate of the ratio.

Zooming in on the different subsectors within the resources sector shows that the resources sector
increase in the developing world was predominantly driven by a boom in the construction sector and
higher growth in gas, electricity, and water. For Sub-Saharan Africa, the boom in the resources sector
is explained by the surge in mining and quarrying (11.6 percent per year during the first decade of the
spurt) and construction (9.9 percent per year). The boom in mining and quarrying might be, in turn,
attributed to favorable international prices of oil, metals, and minerals, and to rising foreign investment
in extractives industries of the region (figure 30). Finally, banking and transportation, storage, and
telecommunications explain the rising share of the services sector among developing countries outside
the region, while the share of services in the region remains almost invariant during the first decade of
the spurt, despite the increase in the infrastructure sector. Along their corresponding growth spurts, the
share of services in Cabo Verde has increased from 72 to 74 percent of GDP, while that of Tanzania has
fluctuated around 42 and 47 percent, and in Zambia it has dropped from 50 to 43 percent. In most of
these cases, the importance of banking and the infrastructure declined while that of wholesale and retail
trade increased.

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A F R I C A S P U L S E

FIGURE 30: Growth within the resources and services sector along growth spurts in Sub-Saharan Africa

Sub-Saharan
Africas exports
grew at a
robust pace,
driven by the
regions natural
resources

Period T (=1.0) is the peak in real GDP per capita previous to the start of the expansion

Gas, Electricity & Water

Banking

Transp., Storage & Telecom

T+9

T+10

T+8

T+7

T+6

T+5

T+4

T+3

T+2

T+1

T+10

T+9

T+8

T+7

Cumulative median growth index (previous peak=1.0)


Mining and quarrying

T+6

T+5

T+4

T+3

T+2

T+1

Construction

3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8

T-1

Panel A: Resources Sector

3.0
2.8
2.6
2.4
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
T-1

Cumulative median growth index (previous peak=1.0)

Panel A: Resources Sector

Wholesale & Retail Trade

Source: World Bank.


Note: T is the trough in real GDP per capita identified using the Bry-Boschan algorithm to detect turning points applied to annual data.

Finally, the paths of real output per worker, capital stock per worker, and TFP along growth spurts are
depicted in figure 31. In the developing world, GDP per worker grew at an average annual rate of 3.3
percent during the first decade of the spurt, with capital deepening and TFP growth contributing equally
to the boost in output per worker. Average annual growth of GDP per worker among African countries
was faster during the spurt (3.5 percent per year), however, and the contribution of TFP growth was
relatively larger than that of capital deepening (1.9 and 1.6 percent per year, respectively).
The pace of growth in labor and TFP is different when comparing resource-rich and non-resource-rich
countries in the Africa region. Real output per worker grew faster among resource-rich countries (4.3
compared to 2.6 percent per year), and TFP growth explains more than half of the surge in economic
growth in this group of countries (2.3 percent per year or 54 percent of the variation in output per
worker). For non-resource-rich countries, TFP growth was positive although slower (1 percent per year). It
can be argued that the faster dynamics in output and productivity among resource-rich countries can be
attributed to the technological and know-how diffusion embedded in foreign investment in extractive
industries. For non-resource-rich African countries, the lower TFP growth would be associated to the shift
in economic activity to activities in the services sector that have low productivity (say, the wholesale and
retail trade sector).

A F R I C A S P U L S E

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FIGURE 31: Capital deepening and total factor productivity growth along growth spurts, 19952012
Period T (=1.0) is the peak in real GDP per capita previous to the start of the expansion

Resource rich

Non-Resource rich

0.95

Fast-growing SSA

DEVC
Capital stock

Total factor productivity

Fast-growing DEVC
Fast SSA, Resource Rich

T+9

All

T+10

Fast-growing

1.00
T+8

0.0

T+7

0.5

1.05

T+6

1.0

1.10

T+5

1.5

1.15

T+4

2.0

T+3

2.5

1.20

T+2

3.0

1.25

3.5

T+1

4.0

1.30

T-1

4.5

Panel B: TFP dynamics along the spurt


Cumulative median growth index (previous peak=1.0)

Panel A: Contribution to output per worker growth

Percent per year

Average annual
growth of GDP
per worker
among African
countries was
faster during
the spurt (3.5
percent per
year) compared
to the average
annual rate in
the developing
world (3.3
percent)

Fast-growing SSA
Fast SSA, Non-Resource Rich

Source: World Bank.


Note: T is the trough in real GDP per capita identified using the Bry-Boschan algorithm to detect turning points applied to annual data. The data of output per worker, capital stocks,
and the number of workers were taken from Penn World Tables 8.0 (Feenstra, Inklaar, and Timmer 2013). DEVC = Developing countries.

GROWTH AND TRADE PATTERNS IN SUB-SAHARAN AFRICA


Sub-Saharan Africas largely resource-based growth has had implications for structural change in the
regions economies and patterns of export growth. An important issue here is whether African countries
growth has been accompanied by a diversification of exports away from primary commodities.

Pattern of export growth: Same exports, new partners


Sub-Saharan Africas exports grew at a robust pace, driven by the regions natural resources. During
19952012, the regions total exports increased from $68 billion to over $400 billion, or at an annual
rate of 11 percent (figure 32). Most of this increase came from natural resources export. For example,
petroleum, minerals, and metals exports ballooned from $38 billion to $300 billion during this period.
Petroleum exports (fuel and gas) alone accounted for over half of the exports in 2012. While high
commodity prices have helped the region in recent years, the heavy reliance on resource-based exports
also makes the region highly vulnerable to the shocks in commodity pricesas has been observed
during 2009 and to some extent in 2012.

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A F R I C A S P U L S E

FIGURE 32: Evolution of merchandise exports in Sub-Saharan Africa, 19952012

US$ Billion
500

Percent
40

450

35

400

30

350
300

25

250

20

200

15

150

10

100

50
0
1995

Sub-Saharan
Africas exports
grew at a
robust pace,
driven by the
regions natural
resources

1999

2003

2007

2011

Petroleum and hydrogas

Metal/ores/minerals

Agriculture

Manufacturing

Other

Total Merchandise Exports( %GDP)

Manufacturing (% GDP)
Source: WITS 2014.

The regions manufacturing exports are also growing, albeit at a much slower rate. During 19952012,
manufacturing exports quadrupled from $7 billion to over $29 billionan average annual growth rate
of about 8 percent, below that of total merchandise exports. Consequently, the share of manufacturing
exports in total merchandise exports has declined over the last 10 years, and at 7 percent is well below
the 1995 level of 10 percent (table 4). The region lags all other developing regions in the relative size of
its manufacturing exports: The share is one-sixth of that in South Asia and one-tenth of that in East Asia
and the Pacific.

TABLE 4: Share of manufacturing exports in total merchandise exports

Manufacturing exports (% of Merchandise Exports)

1995 (%)

2005 (%)

2012 (%)

East Asia & Pacific (developing only)

72

80

76

Europe & Central Asia (developing only)

22

23

21

Latin America & Caribbean (developing only)

39

41

35

South Asia

60

50

45

Sub-Saharan Africa

10

12

Source: WITS 2014.

A F R I C A S P U L S E

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43

Export diversification remains a difficult challenge for many African countries, particularly oil exporters.
Oil-exporting countries rely heavily on a single commodity as their revenue source. For example, Angola,
Chad, Equatorial Guinea, Gabon, and Nigeria received, on average, more than 92 percent of their exports
earnings (as a share of total merchandise exports) from oil during 201013. Although, the export revenue
share from minerals and metals may not be as high as that from oil, it is still high for some nonoil
resource-rich countriesBotswana, Guinea, Mauritania, and Sierre Leonewith earnings more than 50
percent of their revenue from natural resources. In 2012, oil-rich Sub-Saharan African countries had the
highest degree of export concentration (index of 0.68) in the region, and the extent of concentration
has deepened since 1995. The export concentration index is considerably lower for both the nonoil
resource-rich country group (index of 0.48) and the non-resource-rich country group (0.38), and the
degree of contentration has declined since 1995 (figure 33).

In 2012, oil-rich
Sub-Saharan
African
countries had
the highest
degree
of export
concentration
(index of
0.68) in the
region, and
the extent of
concentration
has deepened
since 1995

FIGURE 33: Export concentration ratios by group, 19952012

1.20
0.97

1.00

0.90
0.79

0.80
0.60

0.71

0.68
0.60

0.55

0.48

0.40

0.44

0.85
0.78

0.38

0.74

0.34

0.27

0.00

0.26
0.19

0.20
Resource-Rich Resource-Rich
Oil Countries
Nonoil
Countries

Non-ResourceRich Countries

Angola

1995

Botswana

Nigeria

Namibia

Tanzania

0.11

0.18

South Africa

0.17

Uganda

2012

Source: UNCTAD 2014.

Some countries have had success in diversifying exports. An example is Uganda. The countrys export
diversification has been driven by an increase in nontraditional exports such as flowers, fresh fruits
and vegetables, and fresh and frozen fish. Diversification of exports was helped by policy measures
to facilitate export growth and the development and revival of nontraditional agricultural exports; a
drop in coffee prices, which encouraged producers to switch to other sectors; diverse initiatives from
international donors; and regional integration and pacification of neighboring countries, which opened
opportunities in new markets. Tanzania also saw major increases in and diversification of output and
exports. The production and export of traditional agricultural cash crops (such as cashew nuts, coffee,
cotton, tea, sisal, and tobacco) declined considerably in importance. As a result, output concentration
decreased quickly. The geographic distribution of Tanzanias exports also changed considerably over the
last decade. The European Union (EU) decreased in importance, while regional trade, especially with the
East African Community (EAC) and South Africa, increased.

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A F R I C A S P U L S E

Although Sub-Saharan Africas merchandise exports have remained concentrated in a few commodities,
the regions countries have made substantial progress in diversifying their trading partners. Over the
last decade, exports to emerging markets such as the BRICsBrazil, Russia, India, Chinahave grown
robustly, primarily due to the prolonged boom in commodities demand. The BRICs received only 9
percent of Sub-Saharan Africas exports in 2000 but accounted for 34 percent of total exports a decade
later (figure 34). Total exports to the BRICs surpassed the regions exports to the European Union (EU)
market in 2010 and continue to grow. In 2012, the regions exports to the BRICs reached $145 billion.
China alone accounted for about a quarter (23.3 percent) of the regions total merchandise exports. Of
course, this shift in trading partners also underscores the regions vulnerability to any slowdown in the
BRICs, namely China.
The regions success in
growing markets for its

FIGURE 34: Share of total merchandise exports by destination (%), 200012

maufacturing exports is
BRIC excluding
China 4%

more mixed. In the early


part of the 2000s, most of
the regions manufactured
exports were shipped to
the EU and U.S. markets
these destinations

EU
36%

SSA
10%

of Sub-Saharan Africas

Other
countries
18%

USA
12%

USA
23%

accounted for over half


manufactured exports.

China 5%

Other
countries
21%
SSA
11%

BRIC excluding
China 11%

China
23%
EU
26%

2000

2012

Total value of export US$ 104 billion

Total value of export US$ 423 billion

Over the
last decade,
exports to
emerging
markets have
grown robustly,
primarily due
to the boom in
commodities
demand

However, the share of the


EU as a market for these

Source: WITS 2014.

exports has gradually


declined. In recent years,
the largest share of manufactured exports was traded within the regionmore than 40 percent. The
regions manufactured exports to the most dynamic export destination in recent years (BRIC countries)
were negligible a decade ago and remained low at 4 percent in 2012.

Trade in services An untapped growth area


Globalization of services is a potentially important source of growth for developing countries. Recent
studies (Ghani, Goswami, and Kharas 2011; Goswami and Saez 2014) point to several favorable trends
that support this view: services trade is the fastest-growing sector within global trade; the share of
modern services in total services trade is rising; and the share of developing countries in world service
exports has been rising. Technology and outsourcing are enabling traditional services to overcome
their old constraints such as physical and geographic proximity. Modern services, such as software
development, call centers, and outsourced business processes, can be traded like value-added,
manufactured products, enabling developing countries that focus on such services, innovation, and
technology to leverage services as an important driver of economic growth.

A F R I C A S P U L S E

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45

Has Sub-Saharan Africa tapped this potential? At over $50 billion, the regions services exports trail
all other developing regions; however, these exports are expanding annually at about 12 percent, on
average. Traditional services (such as transportation and travel) have recorded a decline from 73 percent
of total services exports in 2005 to less than 64 percent in 2012, while modern services in the region
have increased their share by nearly 10 percentage points over the same period, from just over 26
percent of total services exports to about 36 percent (figure 35).
In some countries such as Mauritius,
Sub-Saharan
Africas services
exports are
expanding at
an average
annual rate
of about
12 percent.
The share
of modern
services in
total services
exports has
increased
by nearly 10
percentage
points between
2005 and 2012

FIGURE 35: Size of the service sector in Africa, 200512

US$ Billion
60

Rwanda, and Tanzania, modern


Percent
40
35

50

30
40

25

30
20
10
0

2005

2006

2007

2008

2009

2010

2011

Service exports (BoP, current US$)


Modern services (current US$)
Modern Services (% of Total Service exports)
Source: World Bank.
Note: BOP = balance of payments.

2012

services exports recorded annual


growth rates of over 10 percent
between 2005 and 2012, with
Rwanda starting from a low base
of less than $40 million in modern
services exported in 2005 to over

20

twice that amount at almost $85

15

million by 2012. In both Mauritius

10

and Rwanda, rapid expansion

in modern services is a result

of increased activity in tradable


business and financial services. Over
60 percent of those employed in
large companies in Mauritius work
in the services sector, which offers
more employment opportunities
than either agriculture or

manufacturing. While these countries have experienced the fastest increase in modern services, others
like Kenya are also emerging as places where modern services are becoming important drivers of growth
and development.

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A F R I C A S P U L S E

Annex I. Detecting Turning Points with Annual Data


Applying the Bry-Boschan algorithm to annual data is straightforward (Harding 2002). The calculus rule
that > (<) 0 to the right (left) of a local peak (trough) provides a starting point to identify turning points
in a series. Moreover, macroeconomic series are recorded at discrete intervals and typically are not
continuous functions of time. Hence, we require a discrete analog of the calculus rule. For annual data,
the rule for locating turning points becomes:
Peak in real GDP at time t if:
Trough in real GDP at time t if: .
We apply the calculus rule specified above to annual data on real GDP per capita for a wide array of
countries.
We characterize the different phases of the cycle in real output per capita, that is, recessions and
expansions. The main features of these phases are defined as follows:
u The duration of the cycle is computed as the number of years from peak to trough during

contraction episodes and from trough to the next peak in an expansionary phase.
u The amplitude of the cycle is calculated as the maximum drop of GDP from peak (trough) to trough

(peak) during episodes of contraction (expansion).


u The slope of each phase is calculated as the ratio of the amplitude of the peak-to-trough (trough-to-

peak) phase of the cycle to its duration.

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47

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W W W. W O R L D B A N K . O R G / A F R I C A S P U L S E